I

103D CONGRESS

1ST SESSION H. R. 1302

To provide for a national insurance and reinsurance program against the

risk of hurricanes, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 10, 1993

Mr. SHAW (for himself, Mr. GOSS, Mr. HASTINGS, Mr. MCCOLLUM, Mrs.

MEEK, Mr. JOHNSTON of Florida, and Ms. BROWN of Florida) introduced the following bill; which was referred to the Committee on Banking, Finance and Urban Affairs

A BILL

To provide for a national insurance and reinsurance program

against the risk of 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 ‘‘Hurricane Hazard Reduction Act’’.

6 (b) TABLE OF CONTENTS.—

Sec. 1. Short title and table of contents.

Sec. 2. Findings.

Sec. 3. Definitions.

TITLE I—PARTICIPATION BY STATES IN ADOPTION OF HAZARD

REDUCTION MEASURES

Sec. 101. Identification of hurricane-prone States.
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Sec. 102. Criteria for loss-reduction measures.

Sec. 103. Hurricane Loss Mitigation Advisory Committee.

Sec. 104. Self-Sustaining Mitigation Fund.

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

Sec. 106. Incentive to purchase hurricane coverage in hurricane zones.

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

Sec. 108. Coordination with other programs.

Sec. 109. Annual report.

Sec. 110. Regulations.

TITLE II—NATIONAL HURRICANE INSURANCE PROGRAM

Sec. 201. Authority and 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. Mitigation incentives.

Sec. 207. Hurricane Insurance and Reinsurance Advisory Committee.

Sec. 208. Residential Property Insurance Fund.

Sec. 209. Borrowing from Treasury.

TITLE III—NATIONAL HURRICANE EXCESS LOSS REINSURANCE

PROGRAM

Sec. 301. Establishment and terms of coverage.

Sec. 302. Lines of insurance.

Sec. 303. Premium rates.

Sec. 304. Reinsurance contracts.

Sec. 305. Reinsurance Fund.

Sec. 306. Borrowing from Treasury.

1 SEC. 2. DEFINITIONS.

2 For purposes of this Act:

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

4 and loss adjustment expense payments for hurricane

5 coverage issued pursuant to title II that exceed the

6 accumulated amounts in the Residential Property

7 Insurance Fund.

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

9 or reinsurer organized or incorporated in a country

10 other than the United States.
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1 (3) The term ‘‘compliance State’’ means any

2 hurricane-prone State that has been certified by the

3 Director as a compliance State under section 105.

4 (4) The term ‘‘critical facilities vulnerable to

5 hurricanes’’ means schools and structures essential

6 to emergency services necessary for posthurricane

7 recovery (including hospitals, fire and policy facili8 ties, temporary shelters, and emergency operating

9 and preparedness centers) that—

10 (A) have any form of construction or de11 sign that the Director determines is vulnerable

12 to hurricane hazards; and

13 (B) are located in hurricane zones within

14 hurricane-prone States.

15 (5) The term ‘‘Director’’ means the Director of

16 the Federal Emergency Management Agency.

17 (6) The term ‘‘Federal agency’’ means any de18 partment, agency, corporation, or other instrumen19 tality of the executive branch of the Federal Govern20 ment, and includes the Federal National Mortgage

21 Association and the Federal Home Loan Mortgage

22 Corporation.

23 (7) The term ‘‘federally related mortgage loan’’

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

25 the Real Estate Settlement Procedures Act of 1974,
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1 except that the term does not include any loan de2 scribed in subparagraph (B)(iv) of such section.

3 (8) The term ‘‘hurricane coverage’’ means hur4 ricane insurance issued pursuant to title II.

5 (9) The term ‘‘hurricane-prone State’’ means a

6 State determined by the Director pursuant to sec7 tion 101 to have an exposure to the hurricane perils.

8 (10) The term ‘‘hurricane zone’’ means an area

9 within a State identified and classified by the Direc10 tor under section 101(a) as subject to major or mod11 erate hurricane risk.

12 (11) The term ‘‘Insurance Committee’’ means

13 the Hurricane Insurance and Reinsurance Advisory

14 Committee established under section 207.

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

16 Residential Property Insurance Fund established

17 under section 208.

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

19 private insurers and private reinsurers.

20 (14) The term ‘‘Loss Mitigation Committee’’

21 means the hurricane Loss Mitigation Advisory Com22 mittee established under section 103.

23 (15) The term ‘‘loss-reduction criteria’’ means

24 the comprehensive criteria for hurricane loss mitiga25 tion established by the Director under section 102.
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1 (16) The term ‘‘new residential property’’

2 means residential property constructed or substan3 tially improved after the expiration of the 24-month

4 period beginning on the date of the enactment of

5 this Act.

6 (17) The term ‘‘Primary Insurance Program’’

7 means the national hurricane insurance program es8 tablished under title II.

9 (18) The terms ‘‘private insurer’’ and ‘‘private

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

11 licensed or admitted to write property and casualty

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

13 branch of an alien insurer or reinsurer that is en14 tered through and licensed by a State to conduct in15 surance or reinsurance business. In the case of an

16 insurance exchange or group of unincorporated un17 derwriters, the term means an underwriting syn18 dicate, notwithstanding the licensed or admitted sta19 tus of the insurance exchange or group of unincor20 porated underwriters.

21 (19) The term ‘‘Reinsurance Fund’’ means the

22 Reinsurance Fund established under section 305.

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

24 the national hurricane excess loss reinsurance pro25 gram established under title III.
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1 (21) The term ‘‘residential property’’ means—

2 (A) any 1- to 4-family residential structure

3 (including mobile or manufactured homes) and

4 the personal property therein;

5 (B) any residential structure (including

6 condominiums, cooperatives, and apartment

7 structures) containing more than 4 dwelling

8 units; and

9 (C) the personal property of occupants of

10 residential structures containing more than 4

11 dwelling units.

12 (22) The term ‘‘residential property insurance

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

14 insurance that provide indemnity, in whole or in

15 part, for the loss, destruction, or damage of residen16 tial property and other eligible property as deter17 mined by the Director.

18 (23) The term ‘‘Self-Sustaining Mitigation

19 Fund’’ means the Fund established under section

20 104.

21 TITLE I—PARTICIPATION BY

22 STATES IN ADOPTION OF HAZ23 ARD REDUCTION MEASURES

24 SEC. 101. IDENTIFICATION OF HURRICANE-PRONE STATES.

25 (a) INITIAL IDENTIFICATION OF STATES.—
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1 (1) IN GENERAL.—The Director, in consulta2 tion with the National Oceanographic and Atmos3 pheric Administration, other relevant Federal enti4 ties, and meteorological and hurricane experts in the

5 private sector, shall identify States having an expo6 sure to hurricane perils. The Director shall identify

7 any areas that are subject to major or moderate

8 hurricane risks and shall establish such areas as

9 hurricane zones.

10 (2) TIMING AND PUBLICATION.—The Director

11 shall identify such States and zones before the expi12 ration of the 1-year period beginning on the date of

13 the enactment of this Act, and shall cause a listing

14 of such States and zones to be published in the Fed15 eral Register and in widely circulated local news16 papers in the applicable States before the expiration

17 of the 1-year period.

18 (b) FINAL NOTIFICATION.—Each State identified

19 under subsection (a) shall be considered to be an hurri20 cane-prone State for purposes of this Act upon the expira21 tion of the 18-month period beginning upon the date of

22 the enactment of this Act. The Director shall notify the

23 chief executive officer of each State containing a hurricane

24 zone established under subsection (a) in writing, before
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1 the expiration of such 18-month period, that the State is

2 an hurricane-prone State for purposes of this Act.

3 (c) ONGOING IDENTIFICATION AND NOTIFICATION.—

4 Based upon any additional meteorological and hurricane

5 information that from time to time becomes available, the

6 Director may identify additional areas subject to major

7 or moderate hurricane risk (not identified under sub8 section (a)) and shall establish any such areas as hurri9 cane zones. Any States containing such zones (that did

10 not contain any hurricane zones established under sub11 section (a)) shall be considered to be an hurricane-prone

12 State for purposes of this Act upon the notification of the

13 chief executive officer of the State, in writing, of the iden14 tification of the State as an hurricane-prone State.

15 (d) APPEAL.—Any State aggrieved by a final deter16 mination as a hurricane-prone State pursuant to sub17 section (b) or (c), may, after exhausting administrative

18 remedies, appeal such determination to any United States

19 district court for a district located within the State, not

20 more than 60 days after receipt of notice of such deter21 mination. The scope of review by the court shall be as pro22 vided under chapter 7 of title 5, United States Code. Dur23 ing the pendency of any such litigation, all determinations

24 of the Director shall be effective and final for the purposes
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1 of this Act unless stayed by the court for good cause

2 shown.

3 SEC. 102. CRITERIA FOR LOSS-REDUCTION MEASURES.

4 (a) DEVELOPMENT.—

5 (1) IN GENERAL.—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 hurricanes.

13 (2) COORDINATION.—The Director shall de14 velop the loss-reduction criteria in coordination and

15 consistent with the Robert T. Stafford Disaster Re16 lief and Emergency Assistance Act and any other

17 relevant Federal laws. In developing the loss reduc18 tion criteria, the Director shall consult other affected

19 Federal entities, including the National Institute of

20 Standards and Technology, the National Oceanic

21 and Atmospheric Administration, representatives of

22 State and local governments, regional hurricane pre23 paredness organizations, model building code organi24 zations, and insurance industry groups.
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1 (3) SUBMISSION OF DRAFT TO LOSS MITIGA2 TION COMMITTEE.—Not later than the expiration of

3 the 12-month period beginning on the date of the

4 enactment of this Act, the Director shall submit a

5 draft of the loss-reduction criteria to the Loss Miti6 gation Committee established under section 103. Be7 fore issuing any final regulations under paragraph

8 (4), the Director shall consider any recommenda9 tions made by the Loss Mitigation Committee re10 garding the draft criteria.

11 (4) REGULATIONS.—Not later than the expira12 tion of the 18-month period beginning on the date

13 of the enactment of this Act, the Director shall issue

14 regulations establishing the loss-reduction criteria

15 under this section, subject to the provisions of sub16 chapter II of chapter 5 of title 5, United States

17 Code. In issuing final regulations under this para18 graph, the Director shall cause to be published in

19 the Federal Register a description of any differences

20 between the recommendations of the Loss Mitigation

21 Committee and the final regulations (including the

22 applicability of loss-reduction measures to States

23 and localities) developed by the Director. The de24 scription shall contain, for each such difference, an

25 explanation of why the recommendations of the Loss
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1 Mitigation Committee were not included in the final

2 regulations.

3 (b) CONTENT.—The comprehensive loss-reduction

4 criteria established under this section shall include meas5 ures for the reduction of losses from future hurricanes,

6 as follows:

7 (1) MANDATORY INCLUSION.—The Director

8 shall include in the loss-reduction criteria the follow9 ing loss-reduction measures:

10 (A) Minimum building standards sufficient

11 to reduce losses from hurricanes applicable to

12 new residential property and other buildings lo13 cated in hurricane zones.

14 (B) Community-based building codes appli15 cable to new residential property, which shall

16 meet or exceed any minimum hurricane provi17 sions contained in (i) the most recent edition of

18 the National Building Code, (ii) the most recent

19 edition of the Standard Building Code, or (iii)

20 the most recent edition of the Uniform Building

21 Code.

22 (2) DISCRETIONARY INCLUSION.—The Director

23 shall consider and may include in the loss-reduction

24 criteria established under this section any of the fol25 lowing additional loss-reduction measures:
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1 (A) Community-based building codes which

2 contain minimum requirements for construction

3 of new residential property that is located in a

4 hurricane zone not currently covered by any of

5 the building codes referred to in paragraph

6 (1)(B) but identified by the Director as being

7 located in hurricane-prone States.

8 (B) Measures to control construction of

9 buildings in high-risk areas within hurricane

10 zones.

11 (C) To the extent practicable, retrofitting

12 of critical facilities vulnerable to hurricanes.

13 (D) Inspections before transfer of residen14 tial property (and provision to buyers of inspec15 tion reports) regarding the adequacy of mitiga16 tion measures to reduce damage by hurricanes.

17 (E) Hurricane preparedness and planning

18 measures, including—

19 (i) expanded research and develop20 ment by government and private sector en21 tities of new cost-effective building tech22 nologies for new construction and retro23 fitting of existing buildings;
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1 (ii) educational and promotional cam2 paigns to encourage additional voluntary

3 mitigation;

4 (iii) reward-based fiscal incentives,

5 such as lower property tax assessments,

6 prohibiting reassessments for retrofitting

7 which results in increased property values,

8 or other tax incentives to encourage use of

9 the most advanced mitigation technology;

10 (iv) State or community-based efforts

11 to assist low- and moderate-income house12 holds to purchase needed hurricane insur13 ance and to adopt cost-effective loss-reduc14 tion measures;

15 (v) improvements in long-term hurri16 cane construction practices, including the

17 training and licensing of hurricane design

18 professionals as well as public and private

19 building inspectors;

20 (vi) institutional support, training in

21 hurricane engineering technology and other

22 disciplines, and staffing to ensure compli23 ance with the community-based building

24 codes; and
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1 (vii) minimizing damage to public util2 ities, including sewer, gas, electrical and

3 water systems, and other lifelines, consist4 ent with section 104(b).

5 (F) Any other mitigation measures, includ6 ing measures suggested by the Loss Mitigation

7 Committee, that the Director considers appro8 priate.

9 (c) STANDARD.—The Director may not include any

10 mitigation measure included in the loss-reduction criteria

11 established under this section unless the Director deter12 mines that the measure is—

13 (1) directly related to the risk of loss from hur14 ricanes in areas where residential property is lo15 cated;

16 (2) sufficiently effective in reducing the risk of

17 loss from hurricanes to justify any costs to the Fed18 eral Government, State and local governments, and

19 individual property owners in carrying out or com20 plying with the measure;

21 (3) practical and workable with respect to the

22 areas or property to which the measure relates.

23 (d) TECHNICAL ASSISTANCE.—The Director shall co24 ordinate with and provide technical assistance to States,

25 interstate, and local officials and agencies to encourage
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1 adoption and enforcement of State and local actions that

2 incorporate and support the loss-reduction measures de3 veloped by the Director under this section.

4 SEC. 103. HURRICANE LOSS MITIGATION ADVISORY COM5 MITTEE.

6 (a) ESTABLISHMENT.—There is hereby established

7 an independent advisory committee within the executive

8 branch to be known as the hurricane Loss Mitigation Ad9 visory Committee (in this section referred to as the ‘‘Com10 mittee’’). The Committee, its members, and its functions

11 shall be separate from the Hurricane Insurance and Rein12 surance Advisory Committee established under section

13 207. Except as otherwise provided in this section, the

14 Committee shall be subject to the provisions of the Federal

15 Advisory Committee Act.

16 (b) MEMBERSHIP.—

17 (1) APPOINTED MEMBERS.—The Committee

18 shall be composed of 10 members appointed by the

19 President. The members shall be chosen from among

20 citizens of the United States who are respected ex21 perts in the field of hurricane loss mitigation, who

22 shall include—

23 (A) not less than 2 individuals who are

24 employed by a State government as an emer25 gency planners;
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1 (B) not less than 2 individuals who are

2 knowledgeable regarding local community build3 ing codes; and

4 (C) not less than 2 individuals who is em5 ployed as hurricane engineers.

6 The President shall provide for geographic diversity

7 among the members of the Committee and not less

8 than 5 members shall be individuals who are resi9 dents of hurricane-prone States.

10 (2) EX OFFICIO MEMBER.—Notwithstanding

11 paragraph (1), the Chairman of the Insurance Com12 mittee shall serve as an ex officio member of the

13 Loss Mitigation Committee.

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

15 be filled in the manner in which the original appointment

16 was made.

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

18 chairman of the Committee from among members selected

19 for appointment to the Committee.

20 (e) TIMING.—The President shall appoint the mem21 bers of the Committee not later than 180 days after the

22 date of the enactment of this Act.

23 (f) FUNCTIONS.—The Committee shall review the

24 loss reduction criteria (including the specific loss-reduction

25 measures) established under section 102. Not later than
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1 90 days after receiving the draft of the loss-reduction cri2 teria under section 102(a)(3), the Committee shall submit

3 to the Director written comments and recommendations

4 for any changes to the criteria.

5 (g) RESPONSIBILITIES OF DIRECTOR.—The Director

6 shall fully cooperate with the Committee and provide the

7 Committee with access to personnel and information. The

8 Committee may request assistance from relevant Federal

9 agencies as the Committee considers necessary to carry

10 out its functions.

11 SEC. 104. SELF-SUSTAINING MITIGATION FUND.

12 (a) IN GENERAL.—A percentage of the premiums for

13 hurricane insurance collected under the Primary Insur14 ance Program under title II, as the Director shall des15 ignate, shall be deposited annually in a separate fund to

16 be known as the Self-Sustaining Mitigation Fund. The

17 percentage may not exceed 5 percent, unless the Director

18 determines that the amounts in the Insurance Fund are

19 sufficient to provide for any probable expected losses from

20 future hurricanes. Interest on amounts in the Fund shall

21 be credited to the Fund.

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

23 Fund shall be available, to the extent provided in appro24 priation Acts, to the Director to provide assistance to sup25 port the hurricane hazard reduction activities, as follows:
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1 (1) Assistance to States under section 105(c).

2 (2) Assistance to provide hurricane education

3 pursuant to subsection (c).

4 (3) Assistance for research and development on

5 construction techniques to reduce costs of new con6 struction and retrofitting of existing buildings.

7 (4) Low-interest loans or grants for the retro8 fitting of critical facilities vulnerable to hurricanes.

9 (c) HURRICANE EDUCATION PROGRAM.—The Direc10 tor shall provide assistance under this section to support

11 programs educating the general public on the national di12 mensions of hurricane risk and on methods for home13 owners to reduce the hazards resulting from future hurri14 canes.

15 SEC. 105. STATE IMPLEMENTATION OF LOSS-REDUCTION

16 MEASURES.

17 (a) REQUIREMENTS FOR COMPLIANCE STATES.—

18 The Director may certify a hurricane-prone State as a

19 compliance State for purposes of this Act only if—

20 (1) before the expiration of the 2-year period

21 beginning upon the promulgation of final regulations

22 under section 103 establishing the loss-reduction cri23 teria—

24 (A) each county and municipality located

25 in each hurricane zone within the State have
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1 adopted and are enforcing the applicable miti2 gation measures required under the loss-reduc3 tion criteria; and

4 (B) the chief executive officer of the State

5 has designated an administrative authority to

6 coordinate the development and enforcement of

7 hurricane implementation plans for the State,

8 which plans comply with the requirements of

9 the loss-reduction criteria; and

10 (2) the State submits a certification to the Di11 rector under subsection (b)(1) before the expiration

12 of such 2-year period and the Director approves

13 such certification under subsection (c).

14 (b) STATE CERTIFICATION.—The certification re15 ferred to in subsection (a)(2) shall state that the State

16 has substantially adopted and is substantially enforcing

17 the applicable mitigation measures required under the

18 loss-reduction criteria. In providing the certification, each

19 State may consult with any relevant private accreditation

20 and rating organizations approved by the Director.

21 (c) DETERMINATION OF COMPLIANCE.—

22 (1) CRITERIA.—The Director shall issue regula23 tions not later than 18 months after the date of the

24 enactment of this Act establishing criteria for mak-
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1 ing, reviewing, and approving State certifications

2 under subsection (b).

3 (2) INITIAL REVIEW.—The Director shall re4 view each certification submitted under subsection

5 (b) to determine whether it is accurate and whether

6 the State submitting the certification is substantially

7 complying with, and enforcing, the applicable mitiga8 tion measures required under the loss-reduction cri9 teria. If, using the criteria established under para10 graph (1), the Director determines that the State

11 certification is substantially accurate and the State

12 has adopted and is enforcing the applicable mitiga13 tion measures, the Director shall certify the State as

14 a compliance State for purposes of this Act.

15 (3) NONCOMPLIANCE STATES.—If an hurri16 cane-prone State fails to submit a certification under

17 subsection (a)(2) or the Director determines under

18 paragraph (2) or (5) that the State has submitted

19 an inaccurate certification, has not adopted or en20 forced minimum applicable mitigation measures, or

21 has failed to acquire recertification as a compliance

22 State, the Director shall certify the State as a non23 compliance State for purposes of this Act.

24 (4) REVIEW OF NONCOMPLIANCE.—A State cer25 tified as a noncompliance State pursuant to para-
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1 graph (3) may at any time after such certification

2 request the Director to review its certification and

3 compliance, pursuant to which the Director may cer4 tify the States as a compliance State in accordance

5 with paragraph (2).

6 (5) PERIODIC REVIEW.—Using the criteria es7 tablished under subsection (1), the Director shall re8 view the compliance with, and enforcement of, the

9 applicable mitigation measures by each compliance

10 State not less than once every 2 years and shall

11 recertify States as compliance States or certify

12 States as noncompliance States, as appropriate.

13 (d) ASSISTANCE TO PROMOTE COMPLIANCE.—The

14 Director shall provide assistance to each compliance State

15 from amounts in the Self-Sustaining Mitigation Fund

16 under section 104, to the extent that amounts for such

17 assistance are made available under appropriation Acts.

18 The amount of such assistance provided to each State

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

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

21 the amount of hurricane insurance premiums collected in

22 that State under the Primary Insurance Program, and the

23 State’s risk of future hurricanes. The State shall use any

24 such financial assistance to support development and im25 plementation of the State’s mitigation plan, including edu-
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1 cation, enforcement, and mitigation economic incentives,

2 such as low-interest loans for retrofitting.

3 SEC. 106. INCENTIVE TO PURCHASE HURRICANE COV4 ERAGE IN HURRICANE ZONES.

5 (a) AVAILABILITY OF FEDERALLY RELATED MORT6 GAGE LOANS.—After the expiration of the 2-year period

7 beginning upon the promulgation of final regulations

8 under section 102 establishing the loss-reduction criteria,

9 no federally related mortgage loan secured by residential

10 property located in an hurricane zone may be made, in11 creased, extended, or renewed unless the property securing

12 the loan is insured by hurricane coverage or equivalent in13 surance from a private insurer, in the amount required

14 under section 203(a)(6). The Director shall determine, in

15 cooperation with the appropriate Federal agencies, the

16 methods by which such mortgagors shall be required to

17 present proof of compliance with the provisions of this

18 subsection.

19 (b) EXEMPTION FOR STATE PROPERTIES.—Notwith20 standing subsection (a), hurricane coverage (or equivalent

21 private coverage) shall not be required for any State22 owned property that is covered under a State policy of self23 insurance adequate in the determination of the Director.

24 The Director shall publish and periodically revise a list

25 of States to which this subsection applies.
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1 SEC. 107. EFFECT OF NONCOMPLIANCE WITH STATE MITI2 GATION PROGRAM.

3 Each Federal agency or instrumentality responsible

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

5 banks, savings and loans associations, or similar institu6 tions shall, by regulation, prohibit such institutions from

7 making, increasing, extending, or renewing a federally re8 lated mortgage loan secured by improved real estate or

9 a mobile home located or to be located in a hurricane10 prone State, if—

11 (1) the State in which the property is located

12 has been certified as a noncompliance State under

13 section 105; and

14 (2) a presale inspection of the property securing

15 the loan—

16 (A) indicates that the property does not

17 meet the mitigation measures under the loss-re18 duction criteria that would apply to the prop19 erty if the State were a compliance State; or

20 (B) has not been conducted.

21 SEC. 108. COORDINATION WITH OTHER PROGRAMS.

22 In carrying out this Act, the Director shall consult

23 with other departments and agencies of the Federal Gov24 ernment, and with interstate, State and local agencies hav25 ing responsibilities regarding hurricanes, to ensure that
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1 the programs of such agencies and the Primary Insurance

2 Program are mutually consistent.

3 SEC. 109. ANNUAL REPORT.

4 The Director shall include in the annual report sub5 mitted to the President and the Congress pursuant to sec6 tion 2–105 of Executive Order No. 12148 (50 U.S.C. App.

7 2251; relating to the Federal Emergency Management

8 Agency), a description of the activities carried out under

9 this Act and an evaluation of any progress achieved in

10 such activities during the preceding year.

11 SEC. 110. REGULATIONS.

12 (a) DIRECTOR.—The Director may issue any regula13 tions necessary to carry out this Act, pursuant to the pro14 visions of subchapter II of chapter 5 of title 5, United

15 States Code.

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

17 instrumentality responsible for the supervision, approval,

18 regulation, or insuring of banks, savings and loan associa19 tions, or similar institutions, shall, in consultation with the

20 Director, issue any regulations necessary to carry out the

21 responsibilities of the agency under this Act, pursuant to

22 the provisions of subchapter II of chapter 5 of title 5,

23 United States Code.
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1 TITLE II—NATIONAL HURRI2 CANE INSURANCE PROGRAM

3 SEC. 201. AUTHORITY AND ORGANIZATION.

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

5 this Act, the Director shall establish and carry out a na6 tional hurricane insurance program to provide insurance

7 against loss resulting from physical damage to or loss of

8 real property or personal property related thereto, in the

9 United States, arising from any hurricane.

10 (b) IMPLEMENTATION.—In carrying out the Primary

11 Insurance Program, the Director shall arrange for partici12 pation, on other than a risk-sharing basis, by private in13 surers, insurance agents and brokers, insurance adjust14 ment organizations, and other persons. The Director may

15 take any actions reasonably necessary and appropriate to

16 carry out this title, including the making of contracts, the

17 employment and compensation of persons, and the acquisi18 tion of real and personal property.

19 (c) INSURANCE PRACTICES.—Any actions of the Di20 rector under this title shall be consistent with standard

21 insurance practices and generally accepted accounting, ac22 tuarial, and underwriting principles.

23 (d) JURISDICTION OF COURTS.—Any actions by or

24 against the Director (or employees of the Federal Emer25 gency Management Agency) in connection with activities
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1 under this title shall be brought in the appropriate district

2 court of the United States, except that any action by an

3 insurer or reinsurer against the Director (or employees of

4 the Federal Emergency Management Agency) shall be

5 brought in the United States District Court for the Dis6 trict of Columbia.

7 (e) PLAN OF OPERATION.—

8 (1) DEVELOPMENT.—The Director shall de9 velop a plan of operation under this subsection to

10 ensure the fair, reasonable, and equitable adminis11 tration of the Insurance Fund, the Reinsurance

12 Fund, and other activities under this Act.

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

14 forth the specific policy and programmatic details

15 for operating the Primary Insurance Program and

16 the Reinsurance Program, and shall include (A) all

17 guidelines, criteria, definitions, clarifications, and

18 procedures necessary to carry out this Act, (B) pro19 cedures for implementing the mitigation incentives

20 under section 206, and (C) standards for insurers to

21 retain expense allowances from premiums collected

22 under this title.

23 (3) STUDY OF LOW-INCOME RATES.—In devel24 oping the plan of operation, the Director shall con25 sider options for charging less than actuarial rates
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1 for residential property occupied by low-income pol2 icyholders and may include in the plan any option

3 the Director considers necessary, appropriate, and

4 practicable, subject to the requirements under sec5 tion 205(b).

6 (4) SUBMISSION OF DRAFT TO INSURANCE COM7 MITTEE.—Not later than the expiration of the 12-

8 month period beginning on the date of the enact9 ment of this Act, the Director shall submit a draft

10 of the plan of operation to the Insurance Committee

11 established under section 207. Before issuing any

12 proposed regulations under paragraph (5), the Di13 rector shall consider any recommendations made by

14 the Insurance Committee regarding the draft plan of

15 operation.

16 (5) REGULATIONS.—

17 (A) PROPOSED REGULATIONS.—Not later

18 than the expiration of the 18-month period be19 ginning on the date of the enactment of this

20 Act, the Director shall issue proposed regula21 tions establishing the plan of operation under

22 this subsection, subject to the provisions of sub23 chapter II of chapter 5 of title 5, United States

24 Code. In issuing proposed regulations under

25 this paragraph, the Director shall cause to be
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1 published in the Federal Register a description

2 of any differences between the recommendations

3 of the Insurance Committee and the proposed

4 regulations (including the guidelines, criteria,

5 definitions, clarifications, and procedures under

6 the plan) developed by the Director. The de7 scription shall contain, for each such difference,

8 an explanation of why the recommendations of

9 the Insurance Committee were not included in

10 the proposed regulations.

11 (B) COMMENTS.—Upon issuance of the

12 proposed regulations under subparagraph (A),

13 the Director shall request comments from the

14 Insurance Committee regarding any changes to

15 the regulations.

16 (C) FINAL REGULATIONS.—Not later than

17 6 months after issuance of the proposed regula18 tions, the Director shall issue final regulations

19 establishing the plan of action.

20 (D) SUBSEQUENT CHANGES.—Any

21 changes to the plan of operation after issuance

22 of the final regulations containing the plan

23 under subparagraph (C) shall be made pursu24 ant to regulations issued in the manner pro25 vided in subparagraphs (B) through (C).
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1 SEC. 202. SCOPE OF PROGRAM.

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

3 Primary Insurance Program, the Director shall make hur4 ricane coverage available only for residential property. The

5 Director shall make such coverage available in hurricane6 prone States.

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

8 basis of studies and investigations undertaken and carried

9 out and information received or exchanged under section

10 204, and such other information as may be necessary, the

11 Director determines that it would be feasible to extend the

12 Primary Insurance Program to cover property other than

13 residential property, the Director may recommend to Con14 gress that hurricane coverage under this title be made

15 available to cover any types and classes of—

16 (1) other properties in residential areas;

17 (2) small business properties that are owned or

18 leased and operated by small business concerns;

19 (3) religious properties;

20 (4) agricultural properties;

21 (5) properties occupied by primary nonprofit or22 ganizations; and

23 (6) properties owned by State and local govern24 ments and agencies thereof.
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1 SEC. 203. TERMS AND LIMITATIONS OF INSURANCE COV2 ERAGE.

3 (a) TERMS.—Pursuant to the plan of operation es4 tablished under section 201(e) and after consultation with

5 the Insurance Committee, the Director shall establish, by

6 regulation, the general terms and conditions of insurability

7 for properties eligible for residential property insurance

8 coverage under section 202. Such regulations shall meet

9 the requirements of this section and may include—

10 (1) the type and locational classification of such

11 eligible properties;

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

13 by such insurance;

14 (3) appropriate minimum premiums;

15 (4) appropriate loss-deductibles including vari16 able deductibles based on the existence of loss-reduc17 ing measures that affect the risk of loss;

18 (5) appropriate limits on coverage for each clas19 sification of eligible properties;

20 (6) appropriate minimum coverage amounts

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

22 eligible properties, which may not be less than the

23 outstanding principal balance of the mortgage loan

24 securing the property or the maximum coverage

25 limit for the property under paragraph (5), which26 ever is less; and
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1 (7) any other terms and limitations relating to

2 such residential property insurance coverage that

3 may be necessary to carry out the purposes of this

4 title.

5 (b) LIMITATIONS.—Hurricane coverage under this

6 title shall cover any damage to covered eligible property

7 proximately caused by an hurricane and shall include cov8 erage for debris removal and additional living expenses in9 curred as a result of direct damage to the premises by

10 hurricane.

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

12 issuing residential property insurance coverage in hurri13 cane-prone States may provide the coverage under this

14 title, on behalf of the Federal Government, to residential

15 property policyholders of the insurer. Any private insurer

16 electing to participate in the Primary Insurance Program

17 shall make coverage available to all residential property

18 policyholders of the insurer in hurricane-prone States. Any

19 private insurer electing to purchase the excess reinsurance

20 coverage pursuant to title III shall make the coverage

21 available, on behalf of the Federal Government, or at

22 equivalent coverage and rates on their own behalf, to all

23 residential property policyholders of the insurer.
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1 SEC. 204. ESTABLISHMENT OF ACTUARIAL PREMIUM

2 RATES.

3 (a) DETERMINATION AND ESTABLISHMENT OF

4 RATES.—The Director may undertake and carry out any

5 studies and investigations and receive and exchange any

6 information necessary to establish, and shall from time to

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

8 territorial, or other appropriate basis, actuarial premium

9 rates for types of classes of property eligible for residential

10 property insurance coverage and the terms and conditions

11 under which such rates apply.

12 (b) ARRANGEMENTS FOR SERVICES.—In carrying out

13 such studies, the Director shall consult with the Loss Miti14 gation Committee and the Insurance Committee and may

15 enter into contracts, agreements, or other arrangements

16 to utilize the services of the National Oceanic and Atmos17 pheric Administration and other relevant Federal, State,

18 and local governmental agencies, and other persons.

19 (c) CONSIDERATIONS.—The Director shall establish

20 actuarial rates under this section based on—

21 (1) considerations of the risks involved, includ22 ing—

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

25 the insured property is located, including known

26 differences in meteorological conditions;
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1 (B) the value of the insured property;

2 (C) the age of the structures located on

3 the insured property;

4 (D) the construction type of the structures

5 located on the insured property;

6 (E) the architectural type of the structures

7 located on the insured property;

8 (F) hurricane loss-reduction measures (in9 cluding measures described in section 102) em10 ployed in the construction or retrofitting of resi11 dential property structures; and

12 (G) any other criteria the Director consid13 ers appropriate; and

14 (2) application of accepted actuarial and rate15 making principles that reflect the risks involved, an16 ticipated insurance related administrative and oper17 ating costs, and loss and loss-adjustment expense

18 payments, and that provide for adequate reserves.

19 (d) LIMITATION.—Any rate classification system

20 used by the Director to establish actuarial rates under this

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

22 for the initial establishment or the subsequent administra23 tion of the rate plan that are disproportionate to the size

24 of the insurance premiums.
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1 SEC. 205. CHARGEABLE PREMIUM RATES.

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

3 rates established under section 204 and any other infor4 mation available to the Director, the Director shall from

5 time to time, and after consultation with the Loss Mitiga6 tion Committee and the Insurance Committee, establish

7 and prescribe, by regulation—

8 (1) chargeable premium rates for any types and

9 classes of properties eligible for hurricane coverage;

10 and

11 (2) the terms and conditions under which such

12 rates shall apply.

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

14 the maximum extent practicable and except as provided

15 in subsection (c), chargeable premium rates shall be actu16 arial rates over an extended period of time and shall result

17 in a minimum of cross-subsidization by reasonably reflect18 ing the risk of damaging hurricanes in total and for each

19 subclassification of policyholders. In setting and adjusting

20 chargeable rates under this section, the Director shall pro21 vide that, over an extended period of time, expected ex22 penditures from the Insurance Fund under section 208(c)

23 do not exceed expected receipts of the Fund under section

24 208(b).

25 (c) LOW-INCOME RATES AND MITIGATION INCEN26 TIVES.—Pursuant to the plan of operation established
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1 under section 201(e), the Director may establish charge2 able rates under this section for residential property occu3 pied by low-income residents and residential property de4 scribed in section 206(4), that are less than the actuarial

5 rates established under section 204, but only to the extent

6 that such rates do not prevent compliance with the last

7 sentence of subsection (b).

8 SEC. 206. MITIGATION INCENTIVES.

9 In providing hurricane coverage pursuant to the plan

10 of operation, the Director shall provide for the following

11 mitigation incentives:

12 (1) Charging lower deductible amounts for such

13 coverage for any residential property meeting the

14 hurricane building standards established under the

15 loss-reduction criteria.

16 (2) Requiring under such coverage that repairs

17 to residential property sustaining hurricane damage

18 in excess of the deductible include, at a minimum,

19 such mitigation measures as the Director determines

20 appropriate to protect against further damage by

21 hurricanes.

22 (3) Requiring under such coverage that residen23 tial property suffering damage in an amount greater

24 than 50 percent the replacement value of the prop25 erty shall be rebuilt to at least the minimum stand-
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1 ards required under the loss-reduction criteria under

2 section 102 and applicable to the State.

3 (4) Charging lower premiums or deductible

4 amounts for such coverage for any residential prop5 erty located in a hurricane zone in an hurricane6 prone State that passes an hurricane inspection that

7 is required as a condition of sale, paid for by the

8 seller, and meets the requirements of section

9 102(b)(2)(F).

10 SEC. 207. HURRICANE INSURANCE AND REINSURANCE AD11 VISORY COMMITTEE.

12 (a) ESTABLISHMENT.—There is hereby established

13 an independent advisory committee within the executive

14 branch to be known as the Hurricane Insurance and Rein15 surance Advisory Committee. The Insurance Committee,

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

17 Loss Mitigation Committee established under section 103.

18 Except as otherwise provided in this section, the Commit19 tee shall be subject to the provisions of the Federal Advi20 sory Committee Act.

21 (b) MEMBERSHIP.—

22 (1) APPOINTED MEMBERS.—The Insurance

23 Committee shall be composed of 5 members ap24 pointed by the President. The members shall be cho-
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1 sen from among citizens of the United States and

2 shall include—

3 (A) 2 individuals who represent the inter4 ests of private insurers;

5 (B) 1 individual who represents the inter6 ests of private reinsurers;

7 (C) 1 individual who represents the inter8 ests of insurance agents; and

9 (D) 1 individual who is a State insurance

10 regulator.

11 (2) EX OFFICIO MEMBER.—Notwithstanding

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

13 Committee under section 103 shall serve as an ex

14 officio member of the Insurance Committee.

15 (c) VACANCIES.—A vacancy in the Insurance Com16 mittee shall be filled in the manner in which the original

17 appointment was made.

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

19 chairman of the Insurance Committee from among mem20 bers selected for appointment to the Committee.

21 (e) TIMING.—The President shall appoint the mem22 bers of the Insurance Committee not later than 180 days

23 after the date of the enactment of this Act.

24 (f) FUNCTIONS.—The Insurance Committee shall re25 view the draft plan of operation established under section
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1 201(e). Not later than 120 days after receiving the draft

2 plan of operation, the Committee shall submit to the Di3 rector written comments and recommendations for any

4 changes to the plan. After final regulations establishing

5 the plan of operation have been issued, the Committee

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

7 days to the Director and the Congress evaluating the oper8 ations of the Primary Insurance Program and the Rein9 surance Program and making recommendations for any

10 actions relating to such programs. The Committee shall

11 respond as soon as practicable to all requests of the Direc12 tor made pursuant to subsection (g) or section

13 201(e)(5)(B).

14 (g) RESPONSIBILITIES OF THE DIRECTOR.—The Di15 rector shall fully cooperate with the Insurance Committee

16 and provide the Committee with access to personnel and

17 information as the Committee considers necessary to carry

18 out its functions. The Director shall request comments

19 from the Committee on any questions regarding operation

20 of the Primary Insurance Program or Reinsurance Pro21 gram.

22 SEC. 208. RESIDENTIAL PROPERTY INSURANCE FUND.

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

24 the Treasury of the United States the Residential Prop-
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1 erty Insurance Fund for the purpose of carrying out the

2 Primary Insurance Program.

3 (b) CREDITS.—The Insurance Fund shall be credited

4 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.—Amounts in the Insurance Fund shall be

16 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.—The Director may request the

4 Secretary of Treasury to invest any amount in the Insur5 ance Fund in obligations issued or guaranteed by the

6 United States, as the Director considers appropriate.

7 (e) INSURANCE PAYMENTS.—Private insurers issuing

8 hurricane coverage shall remit the premiums collected, less

9 the insurers’ expense allowances, to the Director on a

10 quarterly basis not later than 30 days after the end of

11 the calendar quarter, in accordance with procedures pre12 scribed in the plan of operation. Any premiums collected

13 and to be submitted to the Director shall be deposited in

14 a separate, interest-bearing account established by the in15 surer and any interest collected on any such account shall

16 be remitted to the Director with the premiums on a quar17 terly basis.

18 (f) REIMBURSEMENT OF INSURERS.—

19 (1) REQUIREMENT AND PROCEDURE.—The Di20 rector shall reimburse private insurers providing

21 hurricane coverage from amounts made available

22 from the Insurance Fund. Reimbursement shall be

23 made for all claim payments in an amount up to and

24 including the policy limits of coverage and for all
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1 loss adjustment expenses paid as a result of hurri2 canes, as follows:

3 (A) The Director shall reimburse insurers

4 for all claim payments and loss adjustment ex5 pense payments made pursuant to obligations

6 of the Federal Government. To the extent that

7 reimbursement is obtained by private insurers

8 for losses also covered under the Excess Rein9 surance Program, the insurer shall reimburse

10 the Insurance Fund accordingly.

11 (B) If the gross reimbursements exceed

12 amounts available in the Insurance Fund, a

13 combination of amounts borrowed from the in14 dustry under subparagraph (C) and amounts

15 borrowed from the Treasury of the United

16 States under section 209 shall cover the addi17 tional losses.

18 (C) The industry share under subpara19 graph (B) shall be equivalent to 20 percent of

20 the additional losses. Each private insurer issu21 ing hurricane coverage shall be assessed for the

22 industry participation in the additional losses

23 based upon the proportion that such insurer’s

24 written premiums for hurricane coverage in

25 each State in which the hurricane events oc-
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1 curred bear to the total written premiums for

2 hurricane coverage from all insurers in each

3 State in which the same events occurred, based

4 on the most recently published annual report of

5 the Federal Emergency Management Agency.

6 Assessments under this subparagraph may be

7 reinsured under title III.

8 (2) REGULATIONS.—The Director shall issue

9 regulations establishing the general method or meth10 ods by which proved and approved claims for losses

11 may be adjusted and paid for damages covered by

12 hurricane coverage. The claim practices of the Insur13 ance Fund shall be subject to, and conform with,

14 any applicable State insurance unfair trade practices

15 statutes. Judicial review of a decision of the Director

16 regarding reimbursement of a private insurer shall

17 be available pursuant to section 201(d).

18 (g) OBLIGATIONS.—Any hurricane insurance cov19 erage provided under the Primary Insurance Program

20 shall constitute an obligation, in accordance with the pro21 visions of this title, of the United States. The full faith

22 and credit of the United States is hereby pledged for the

23 full payment and performance of such obligations, subject

24 to the provisions of subsection (f)(1)(C). The private in25 surers participating in the program shall bear no risk and
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1 shall assume no liability for the hurricane coverage pro2 vided through the program except as provided in sub3 section (f)(1)(C).

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

5 deposit in the Insurance Fund shall be exempt from all

6 taxation now or hereafter imposed by the United States,

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

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

9 except that the insurance policies issued by or in conjunc10 tion with the Federal Government pursuant to this title

11 shall be subject, where applicable, to State insurance pre12 mium taxes.

13 SEC. 209. BORROWING FROM TREASURY.

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

15 assets, including any return on investments, in the Insur16 ance Fund are insufficient to pay claims and expenses,

17 the Director shall issue, from time to time, to the Sec18 retary of the Treasury, notes and other obligations to

19 cover the insufficiency. The amounts of such obligations

20 outstanding at any one time shall not exceed

21 $25,000,000,000 (or such greater amount as may be ap22 proved by the President).

23 (b) INTEREST RATE.—Obligations under subsection

24 (a) shall bear interest at a rate determined by the Sec25 retary of the Treasury, taking into consideration the cur-
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1 rent average market yield on outstanding marketable obli2 gations of the United States of comparable maturities.

3 (c) DEPOSITS.—Any amounts borrowed under this

4 section shall be deposited in the Insurance Fund.

5 (d) REPAYMENT.—The Director shall provide for the

6 recovery of any amounts that are borrowed under this sec7 tion and repaid, including interest on the borrowed funds,

8 through future chargeable premium rates for hurricane

9 coverage, pursuant to the plan of operation. The Secretary

10 of the Treasury may grant extensions in repayment sched11 ules that the Director determines are necessary.

12 TITLE III—NATIONAL HURRI13 CANE EXCESS LOSS REINSUR14 ANCE PROGRAM

15 SEC. 301. ESTABLISHMENT AND TERMS OF COVERAGE.

16 (a) ESTABLISHMENT.—

17 (1) INITIAL AVAILABILITY.—Upon the issuance

18 of final regulations establishing the plan of operation

19 under section 201(e), the Director shall establish

20 and carry out a national hurricane excess loss insur21 ance program to make available, to any private in22 surer participating in the Primary Insurance Pro23 gram or any private reinsurer which reinsures any

24 such private insurer, reinsurance coverage for direct
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1 and indirect losses that are not eligible for hurricane

2 coverage under title II and arise from a hurricane.

3 (2) EXPANDED AVAILABILITY.—Upon the expi4 ration of the 2-year period beginning upon issuance

5 of the regulations referred to in paragraph (1), the

6 Director shall make available, to any private insurer

7 or private reinsurer, excess reinsurance coverage for

8 direct and indirect losses that are not eligible for

9 hurricane coverage under title II and arise from an

10 hurricane. Any private insurer or reinsurer partici11 pating in the Primary Insurance Program under

12 title II shall purchase the excess reinsurance cov13 erage under this title.

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

15 shall be made available subject to the following require16 ments:

17 (1) INDUSTRY.—The Reinsurance Fund under

18 section 305 shall be liable with respect to such rein19 surance in the event of an hurricane after, as deter20 mined by the Director, the insurance industry has

21 incurred losses and loss adjustment expenses from

22 the single event that are covered under the lines de23 scribed in section 302(a) and that exceed 8 percent

24 of the industry countrywide subject net written pre25 mium.
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1 (2) FEDERAL GOVERNMENT.—After the insur2 ance industry has sustained losses described in para3 graph (1), the Federal Government shall be liable to

4 an individual private insurer or private reinsurer for

5 95 percent of qualifying losses in excess of 8 percent

6 of the private insurer’s or private reinsurer’s coun7 trywide subject net written premium.

8 (c) QUALIFYING LOSSES.—For the purposes of sub9 section (b), the term ‘‘qualifying losses’’ means losses and

10 loss adjustment expenses incurred by a private insurer or

11 private reinsurer from an hurricane event, reduced—

12 (1) by any collectible reinsurance recoverable;

13 and

14 (2) by a factor for uncollectible reinsurance re15 coverable determined as follows:

16 (A) If the percentage of unrecoverable re17 insurance arising from the event to total rein18 surance (not including hurricane excess loss re19 insurance purchased under this title) with re20 spect to the event is over 0 percent but not over

21 5 percent, 0 percent of unrecoverable reinsur22 ance.

23 (B) If the percentage of unrecoverable re24 insurance arising from the event to total rein25 surance (not including hurricane excess loss re-
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1 insurance purchased under this title) with re2 spect to the event is over 5 percent but not over

3 15 percent, 33.33 percent of unrecoverable rein4 surance over 5 percent but not over 15 percent.

5 (C) If the percentage of unrecoverable re6 insurance arising from the event to total rein7 surance (not including hurricane excess loss re8 insurance purchased under this title) with re9 spect to the event is over 15 percent but not

10 over 25 percent, the amount determined under

11 subparagraph (B) plus 66.66 percent of unre12 coverable reinsurance over 15 percent but not

13 over 25 percent.

14 (D) If the percentage of unrecoverable re15 insurance arising from the event to total rein16 surance (not including hurricane excess loss re17 insurance purchased under this title) with re18 spect to the event is over 25 percent, the

19 amount determined under subparagraph (C)

20 plus 100 percent of unrecoverable reinsurance

21 over 25 percent.

22 (d) ELIGIBILITY OF INDIVIDUAL INSURERS.—

23 (1) IN GENERAL.—Notwithstanding the provi24 sions of subsections (b) and (c), a private insurer or

25 private reinsurer shall be eligible for excess loss rein-
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1 surance coverage and reimbursement from the Fed2 eral Government if the insurer or reinsurer has in3 curred losses, prior to any reinsurance coverage,

4 from a single event that are included in the lines de5 scribed in section 302(a) and that exceed 50 percent

6 of the insurer’s countrywide subject direct written

7 premium or the insurer’s countrywide subject net

8 written premium, whichever is greater.

9 (2) LIABILITY.—After a private insurer or pri10 vate reinsurer covered under the Reinsurance Pro11 gram has sustained losses described in paragraph

12 (1), the Federal Government shall be liable for 95

13 percent of qualifying losses, as defined in subsection

14 (c), in excess of 20 percent of the private insurer’s

15 or reinsurer’s countrywide subject net written pre16 mium.

17 (3) LIMITATION ON LIABILITY.—Notwithstand18 ing paragraphs (1) and (2), the Federal Government

19 shall not be liable under this subsection in excess of

20 200 percent of a private insurer’s countrywide sub21 ject direct net written premium and 600 percent of

22 a private reinsurer’s countrywide subject assumed

23 net written premium. In the event a company is both

24 a private insurer and a private reinsurer, the Fed25 eral Government shall not be liable under this sub-
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1 section in excess of 200 percent of the company’s

2 subject direct net written premium and 600 percent

3 of the company’s subject assumed net written pre4 mium. Intracompany or intragroup reinsurance ar5 rangements or contracts shall not be considered as

6 reinsurance in the calculation of insurance and rein7 surance subject direct or subject assumed net writ8 ten premium under this subsection.

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

10 (1) The term ‘‘subject assumed net written pre11 mium’’ means premiums received from other insur12 ance companies for reinsurance less ceded reinsur13 ance, for all lines of coverage described in section

14 302.

15 (2) The term ‘‘subject direct net written pre16 mium’’ means the aggregate amount of recorded

17 originated premiums, other than reinsurance, issued

18 during the year whether collected or not at the close

19 of the year (plus retrospective audit premium collec20 tions) after deducting all return premiums and ceded

21 reinsurance premiums, for all lines of coverage de22 scribed in section 302.

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

24 means direct and reinsurance premiums received by

25 private insurers and private reinsurers, less pre-
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1 miums paid for ceded reinsurance, for all lines of

2 coverage described in section 302.

3 (4) The term ‘‘unrecoverable reinsurance’’

4 means reinsurance proceeds due and payable in ac5 cordance with the terms of a reinsurance contract

6 that are not paid within 12 months of the due date.

7 SEC. 302. LINES OF INSURANCE.

8 (a) COVERED LINES FOR INSURERS.—The Director

9 shall provide excess loss reinsurance coverage under this

10 title for all of the following lines of insurance appearing

11 in the National Association of Insurance Commissioners

12 Fire and Casualty Annual Statement filed with the appli13 cable State department of insurance:

14 (1) Fire.

15 (2) Allied Lines.

16 (3) Farmowner’s Multiple Peril.

17 (4) Homeowner’s Multiple Peril.

18 (5) Commercial Multiple Peril.

19 (6) Ocean Marine.

20 (7) Inland Marine.

21 (8) Earthquake.

22 (9) Workers Compensation.

23 (10) Other Liability.

24 (11) Aircraft (All Perils).

25 (12) Glass.
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1 (13) Burglary and Theft.

2 (14) Boiler and Machinery.

3 (15) Reinsurance.

4 The Director shall provide that any private insurer or re5 insurer purchasing excess loss reinsurance coverage under

6 this title purchase coverage for all of covered lines of in7 surance described in this subsection and in all affected

8 hurricane zones within a hurricane-prone State.

9 (b) COVERED LINES FOR REINSURERS.—The Fed10 eral Government shall provide excess loss reinsurance cov11 erage to private reinsurers for all of the lines of insurance

12 referred to in subsection (a) as well as other lines of insur13 ance appearing in the National Association of Insurance

14 Commissioners Fire and Casualty Annual Statement, as

15 determined by the Director in the plan of operation and

16 in consultation with the Insurance Committee.

17 SEC. 303. PREMIUM RATES.

18 (a) ESTABLISHMENT.—The Director shall establish

19 the rates for excess loss reinsurance coverage and adjust

20 the rates when necessary, using generally accepted actuar21 ial principles. To the maximum extent practicable, such

22 rates shall be actuarial rates that produce a minimum de23 gree of cross-subsidization over an extended period of time

24 consistent with the infrequency of catastrophic hurricanes.

25 In setting and adjusting the rates, the Director shall pro-
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1 vide that, over an extended period of time, expected ex2 penditures from the Reinsurance Fund under section

3 305(c) do not exceed expected receipts of the Reinsurance

4 Fund under section 305(b).

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

6 rates, the Director shall provide for a minimum degree

7 of cross-subsidization among classes of reinsureds by rea8 sonably reflecting the differences in risk of and vulner9 ability to loss from hurricanes that would be subject to

10 payment from the Reinsurance Fund, giving consideration

11 to—

12 (1) the premium volume of the reinsured by line

13 of insurance described in section 302(a) by hurri14 cane zone or State in which the risks insured or re15 insured by the reinsured are located; and

16 (2) the proportion of the total expected amount

17 of payments for qualifying losses and loss adjust18 ment expenses by line of insurance described in sec19 tion 302(a) by hurricane zone or State expected for

20 each reinsured.

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

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

23 and shall not impose costs for the initial establishment or

24 the subsequent administration of the rating plan that are

25 disproportionate to the size of the premiums.
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1 (d) QUARTERLY PAYMENT.—Premiums for excess

2 loss reinsurance coverage under this title shall be paid to

3 the Reinsurance Fund on a quarterly basis.

4 SEC. 304. REINSURANCE CONTRACTS.

5 (a) TERMS.—Contracts for excess loss reinsurance

6 coverage issued by the Director under this title shall con7 tain terms and conditions similar to those generally used

8 in private catastrophic reinsurance contracts.

9 (b) JUDICIAL REVIEW.—Judicial review of a decision

10 of the Director regarding payment of claims under a con11 tract for excess loss reinsurance coverage under this title

12 shall be made available pursuant to section 201(d).

13 (c) OBLIGATIONS.—All contracts for excess loss rein14 surance coverage issued under this title shall constitute

15 obligations, in accordance with the terms of such reinsur16 ance, of the United States. The full faith and credit of

17 the United States is hereby pledged for the full payment

18 and performance of such obligations.

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

20 reinsurance companies under the same ownership or man21 agement, as determined under the plan of operation, shall

22 be considered a single entity for purposes of this title.
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1 SEC. 305. REINSURANCE FUND.

2 (a) ESTABLISHMENT.—There is hereby established in

3 the Treasury of the United States the Reinsurance Fund

4 for the purposes of carrying out the Reinsurance Program.

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

6 shall be credited with—

7 (1) any reinsurance premiums received by the

8 Director under the Reinsurance Program;

9 (2) any amounts borrowed under section 306;

10 and

11 (3) any amounts earned under subsection (d).

12 (c) USE OF FUND—The Reinsurance Fund shall be

13 available to the Director for—

14 (1) payments for qualifying losses and loss ad15 justment expenses under the Reinsurance Program

16 under this title;

17 (2) administrative expenses of carrying out the

18 Reinsurance Program; and

19 (3) interest payments on amounts borrowed

20 under section 306, if any.

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

22 Secretary of the Treasury to invest any amounts in the

23 Reinsurance Fund in obligations issued or guaranteed by

24 the United States, as the Director considers appropriate.

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

26 collected for deposit in the Reinsurance Fund shall be ex-
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1 empt from all taxation now or hereafter imposed by the

2 United States, by any territory, dependency or possession

3 thereof, or by any State, county, municipality, or local tax4 ing authority, except that the reinsurance policies issued

5 by or in conjunction with the Federal Government pursu6 ant to this title shall be subject, where applicable, to State

7 insurance premium taxes.

8 SEC. 306. BORROWING FROM TREASURY.

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

10 assets, including any return on investments, in the Rein11 surance Fund are insufficient to pay claims and expenses,

12 the Director shall issue, from time to time, to the Sec13 retary of the Treasury, notes and other obligations to

14 cover the insufficiency. The amounts of such obligations

15 outstanding at any one time shall not exceed

16 $25,000,000,000 (or such greater amount as may be ap17 proved by the President).

18 (b) INTEREST RATE.—Obligations under subsection

19 (a) shall bear interest at a rate determined by the Sec20 retary of the Treasury, taking into consideration the cur21 rent average market yield on outstanding marketable obli22 gations of the United States of comparable maturities.

23 (c) DEPOSITS.—Any amounts borrowed by the Direc24 tor under this section shall be deposited in the Reinsur25 ance Fund.
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1 (d) REPAYMENT.—The Director shall provide for the

2 recovery of any amounts that are borrowed under this sec3 tion and repaid, including interest on the borrowed funds,

4 through future chargeable premium rates for excess loss

5 reinsurance coverage under this title, pursuant to the plan

6 of operation. The Secretary of the Treasury may grant

7 extensions in repayment schedules that the Director deter8 mines are necessary.

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