I 

111TH CONGRESS 

1ST SESSION H. R. 4014 

To establish a program to provide guarantees for debt issued by State catastrophe insurance programs to assist in financial recovery from natural 

catastrophes. 

IN THE HOUSE OF REPRESENTATIVES 

NOVEMBER 4, 2009 

Ms. LORETTA SANCHEZ of California introduced the following bill; which was 

referred to the Committee on Financial Services 

A BILL 

To establish a program to provide guarantees for debt issued 

by State catastrophe insurance programs to assist in 

financial recovery from natural catastrophes. 

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

3 SECTION 1. SHORT TITLE. 

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

5 ‘‘Catastrophe Obligation Guarantee Act of 2009’’. 

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

7 this Act is as follows: 

Sec. 1. Short title. 

Sec. 2. Congressional findings. 

Sec. 3. Establishment of debt guarantee program. 

Sec. 4. Eligible State programs. 


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Sec. 5. Catastrophic debt guarantees. 

Sec. 6. Effect of guarantee. 

Sec. 7. Maximum limitation on outstanding guarantees under program. 

Sec. 8. Payment of losses. 

Sec. 9. Funding for payments of guarantees. 

Sec. 10. Definitions. 

1 SEC. 2. CONGRESSIONAL FINDINGS. 

2 The Congress finds that— 

3 (1) the United States needs to take action, and 

4 support actions taken by States, to be better pre5 pared for and better protected from natural catas6 trophes; 

7 (2) the hurricane seasons of 2004, 2005, and 

8 2008 were startling reminders of both the human 

9 and economic devastation that natural catastrophes 

10 can cause; 

11 (3) if the deadly 1900 Galveston hurricane were 

12 to occur again, it could cause over $36,000,000,000 

13 in insured losses; 

14 (4) if the 1906 San Francisco earthquake and 

15 fire were to occur again, it could cause over 

16 $400,000,000,000 in insured losses; 

17 (5) if a Category 5 hurricane were to hit 

18 Miami, it could cause over $50,000,000,000 in in19 sured loss; 

20 (6) if the 1938 Long Island Express Hurricane 

21 were to occur again, it could cause over 

22 $30,000,000,000 in insured losses, and if a hurriVerDate Nov 24 2008 02:16 Nov 05, 2009 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H4014.IH H4014

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1 cane that powerful were to hit Manhattan directly it 

2 could cause over $150,000,000,000 in insured losses 

3 and cause irreparable harm to our Nation’s econ4 omy; 

5 (7) the inability of private insurers to build ade6 quate capital in a short amount of time and the re7 sulting lack of sufficient insurance capacity threaten 

8 to increase the number of uninsured residential 

9 properties, which, in turn, will increase the risk of 

10 mortgage and other credit defaults and increase the 

11 strain on the Nation’s banking system; 

12 (8) it is appropriate that efforts to improve in13 surance availability be designed and implemented at 

14 the State level, but even active and experienced 

15 State catastrophe insurance programs struggle with 

16 issues of capital adequacy and financial strength; 

17 (9) some States have acted to ensure the con18 tinued availability or affordability, or both, of resi19 dential property insurance for their residents; 

20 (10) while State catastrophe insurance pro21 grams may be well designed and adequate to cover 

22 insured losses from most natural disasters, a small 

23 but significant number of catastrophic events are 

24 likely to exceed the combined financial capacity of 


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1 such State programs and the local insurance mar2 kets; 

3 (11) the Government Accountability Office has 

4 found that, of the approximately $90 billion in Fed5 eral emergency appropriations in the wake of the 

6 2005 hurricanes, approximately $26 billion was used 

7 by the Federal Emergency Management Agency, the 

8 Small Business Administration, and the Department 

9 of Housing and Urban Development to make pay10 ments to homeowners or renters who lacked ade11 quate insurance; and 

12 (12) the recent and historic turmoil in the fi13 nancial markets calls into question the ability of 

14 even the most creditworthy State catastrophe insur15 ance programs to secure adequate financing fol16 lowing a catastrophic event. 

17 SEC. 3. ESTABLISHMENT OF DEBT GUARANTEE PROGRAM. 

18 The Secretary of the Treasury shall carry out a pro19 gram under this Act to guarantee, and to enter into com20 mitments to guarantee, holders of debt obligations issued 

21 by eligible State programs against loss of principal or in22 terest on such obligations, or both. 

23 SEC. 4. ELIGIBLE STATE PROGRAMS. 

24 (a) REQUIREMENTS.—A State program shall be con25 sidered an ‘‘eligible State program’’ for purposes of this 


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1 Act only if the State program, or other State entity au2 thorized to make such determinations, certifies to the Sec3 retary, in accordance with the procedures established pur4 suant to subsection (b), that the State program complies 

5 with the following requirements: 

6 (1) PROGRAM DESIGN.—The State program 

7 shall be established and authorized by State law— 

8 (A) as an insurance program that— 

9 (i) offers residential property insur10 ance coverage for insured losses to prop11 erty, contents, and additional living ex12 penses; and 

13 (ii) is not a State program that re14 quires insurers to pool resources to provide 

15 property insurance coverage for covered 

16 perils; or 

17 (B) as a reinsurance program that— 

18 (i) is designed to improve private in19 surance markets; and 

20 (ii) offers residential property insur21 ance coverage for insured losses to prop22 erty, contents, and additional living ex23 penses because of a finding by the State 

24 insurance commissioner or other State en25 tity authorized to make such a determinaVerDate Nov 24 2008 02:16 Nov 05, 2009 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H4014.IH H4014

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1 tion that such State program is necessary 

2 in order to provide for the continued avail3 ability of such insurance coverage for all 

4 residents of the State. 

5 (2) PROGRAM OPERATION.—The State program 

6 shall meet the following requirements: 

7 (A) GOVERNING BODY.—A majority of the 

8 members of the governing body of the State 

9 program shall be public officials or appointed 

10 by public officials. 

11 (B) FINANCIAL INTEREST.—The State 

12 shall have a financial interest in the State pro13 gram. 

14 (C) PROGRAM FUNDS.—If the State has at 

15 any time appropriated amounts from the State 

16 program’s funds for any purpose other than 

17 payments for losses insured under the State 

18 program, or payments made in connection with 

19 any of the State program’s authorized activi20 ties, the State shall have returned such 

21 amounts to the State fund, together with inter22 est on such amounts. 

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

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

25 designee) a written determination, within the meanVerDate Nov 24 2008 02:16 Nov 05, 2009 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H4014.IH H4014

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1 ing of section 6110(b) of the Internal Revenue Code 

2 of 1986, that the State program— 

3 (A) constitutes an integral part of the 

4 State that has created it; or 

5 (B) is otherwise exempt from Federal in6 come taxation. 

7 (4) COVERED PERILS.— 

8 (A) IN GENERAL.—The State program 

9 shall insure or reinsure losses that are proxi10 mately caused by any of the following perils: 

11 (i) Earthquakes. 

12 (ii) Perils ensuing from earthquakes, 

13 including fire and tsunamis. 

14 (iii) Tropical cyclones having max15 imum sustained winds of at least 74 miles 

16 per hour, including hurricanes and ty17 phoons. 

18 (iv) Tornadoes. 

19 (v) Volcanic eruptions. 

20 (vi) Catastrophic winter storms. 

21 (vii) Hail. 

22 (viii) Any other natural catastrophe 

23 (not including any flood) insured or rein24 sured under the State program. 


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1 (B) AUTHORITY OF SECRETARY TO DE2 FINE.—The Secretary shall, by regulation, de3 fine the natural catastrophe perils under this 

4 subsection. 

5 (5) PREVENTION AND MITIGATION.—The State 

6 program shall include provisions designed to encour7 age and support programs to mitigate losses from 

8 natural catastrophes for which the State insurance 

9 or reinsurance program was established to provide 

10 insurance coverage. 

11 (6) ACTUARIAL PREMIUM RATES.—The State 

12 program shall be subject to a requirement under 

13 State law that, for any insurance coverage made 

14 available under the State insurance program or for 

15 any reinsurance coverage for such insurance cov16 erage made available under the State reinsurance 

17 program, the premium rates charged shall be actu18 arially sound or actuarially indicated. 

19 (b) CERTIFICATION AND RECERTIFICATION.—The 

20 Secretary shall establish procedures for initial certification 

21 and annual recertification of State programs as eligible 

22 State programs. 

23 SEC. 5. CATASTROPHIC DEBT GUARANTEES. 

24 (a) ELIGIBILITY FOR GUARANTEE.—A guarantee 

25 under the program under this Act of the debt of an eligible 


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1 State program may be issued only if the Secretary has 

2 issued a commitment to guarantee such debt to such eligi3 ble State program. The commitment to guarantee shall 

4 have a duration of three years and may be extended by 

5 the Secretary for a period of one year on each annual an6 niversary of the issuance of the commitment to guarantee. 

7 The commitment to guarantee and each extension of such 

8 commitment may be issued by the Secretary only if the 

9 Secretary determines, based on information provided by 

10 the eligible State program that the Secretary shall require, 

11 that there is reasonable assurance that the eligible State 

12 program can meet its repayment obligation under the 

13 debt. 

14 (b) REQUIRED AMOUNT OF INSURED LOSSES.—The 

15 Secretary may not issue a guarantee under the program 

16 under this Act for any debt obligations of an eligible State 

17 program unless the eligible State program demonstrates 

18 to the satisfaction of the Secretary that insured losses to 

19 the eligible State program that arise from the event or 

20 events of covered perils and that are covered by the com21 mitment to guarantee are likely to exceed the cash re22 sources of the eligible State program available on the date 

23 of the occurrence of the event. 

24 (c) LIMITATION ON AMOUNT OF GUARANTEES.— 


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1 (1) IN GENERAL.—Except as provided in para2 graph (2), the aggregate principal amount of debt of 

3 an eligible State program guaranteed following an 

4 event or events referred to in subsection (a) may not 

5 exceed the amount by which the insured losses ex6 pected to be sustained by the State program as a re7 sult of such event or events exceed 80 percent of the 

8 qualifying assets of the eligible State program as 

9 stated in the most recent quarterly financial state10 ment filed with its domiciliary regulator before the 

11 occurrence of event or events. 

12 (2) STATE PROGRAMS NOT FILING QUARTERLY

13 STATEMENTS.—In the case of any eligible State pro14 gram that is not required to file quarterly financial 

15 statements with its domiciliary regulator, the aggre16 gate principal amount of debt guaranteed may not 

17 exceed the amount by which insured losses sustained 

18 by the State program as a result of such event or 

19 events exceed 80 percent of the unrestricted net as20 sets as stated in the annual financial statement for 

21 the program’s fiscal year ending immediately prior 

22 to the event or events. 

23 (d) USE OF FUNDS.—Amounts of debt of an eligible 

24 State program that are guaranteed under this section shall 

25 be used only to pay the insured losses and loss adjustment 


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1 expenses incurred by the eligible State program. Such 

2 amounts shall not be used for any other purpose. 

3 SEC. 6. EFFECT OF GUARANTEE. 

4 (a) IN GENERAL.—The issuance of any guarantee 

5 under the program under this Act by the Secretary shall 

6 be conclusive evidence that— 

7 (1) the guarantee has been properly obtained; 

8 (2) the underlying debt qualified for such guar9 antee; and 

10 (3) the guarantee is valid, legal, and enforce11 able. 

12 (b) FULL FAITH AND CREDIT.—The full faith and 

13 credit of the United States is pledged to the payment of 

14 all guarantees issued under the program under this Act 

15 with respect to principal and interest of the debt guaran16 teed. 

17 SEC. 7. MAXIMUM LIMITATION ON OUTSTANDING GUARAN18 TEES UNDER PROGRAM. 

19 The aggregate principal amount of debt obligations 

20 for which guarantees under the program under this Act 

21 are outstanding may not at any time exceed— 

22 (1) with respect to eligible State programs that 

23 cover earthquake perils, $5,000,000,000; and 

24 (2) with respect to eligible State programs that 

25 cover all other perils, $20,000,000,000. 


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1 SEC. 8. PAYMENT OF LOSSES. 

2 (a) IN GENERAL.—If any portion of the principal of 

3 or interest on any debt obligation guaranteed under this 

4 Act becomes due for payment but is unpaid by the eligible 

5 State program issuing such obligation as a result of such 

6 program having provided insufficient funds to the duly ap7 pointed paying agent or trustee (in this section referred 

8 to as the ‘‘fiscal agent’’) for the eligible State program, 

9 the Secretary shall pay to the fiscal agent an amount equal 

10 to such portion. 

11 (b) TIMING.—The Secretary shall make such pay12 ments on the later of— 

13 (1) the date such principal or interest becomes 

14 due for payment; or 

15 (2) the first business day after the day on 

16 which the Secretary receives notice, in such form 

17 and manner as the Secretary may require, of failure 

18 by the eligible State program to provide sufficient 

19 funds to the fiscal agent to make such payments. 

20 (c) SUBROGATION.—Upon making such payment, the 

21 Secretary shall be subrogated to all the rights of the ulti22 mate recipient of the payment. The Secretary shall be en23 titled to recover from the eligible State program the 

24 amount of any payments made pursuant to any guarantee 

25 entered into under this Act. 


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1 (d) ROLE OF THE ATTORNEY GENERAL.—The Attor2 ney General will take such action as may be appropriate 

3 to enforce any right accruing to the United States as a 

4 result of the issuance of any guarantee under this Act. 

5 (e) FORBEARANCE.—Nothing in this section may be 

6 construed to preclude any forbearance for the benefit of 

7 the eligible State program that is agreed to by the parties 

8 to any debt obligation guaranteed under this Act and is 

9 approved by the Secretary, subject to the availability of 

10 budget authority for any resulting costs (as such term is 

11 defined in section 502 of the Federal Credit Reform Act 

12 of 1990 (2 U.S.C. 661a)). 

13 (f) AUTHORITY OF SECRETARY.—Notwithstanding 

14 any other provision of law relating to the acquisition, han15 dling, or disposal of property by the United States, the 

16 Secretary may, in the discretion of the Secretary, com17 plete, recondition, reconstruct, renovate, repair, maintain, 

18 operate, or sell any property acquired by the Secretary 

19 pursuant to the provisions of this Act. 

20 SEC. 9. FUNDING FOR PAYMENTS OF GUARANTEES. 

21 (a) APPROPRIATIONS.—There are hereby appro22 priated, out of funds in the Treasury not otherwise appro23 priated, such sums as may be necessary to satisfy debt 

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1 tive expenses for conduct of the guarantee program au2 thorized by this Act. 

3 (b) BUDGETARY IMPACT.—For purposes of section 

4 502(5) of the Federal Credit Reform Act of 1990 (2 

5 U.S.C. 661a(5)), the cost of guarantees issued under this 

6 Act shall be calculated by adjusting the discount rate in 

7 section 502(5)(E) of such Act for government risk. 

8 SEC. 10. DEFINITIONS. 

9 In this Act, the following definitions shall apply: 

10 (1) COMMITMENT TO GUARANTEE.—The term 

11 ‘‘commitment to guarantee’’ means a commitment to 

12 make debt guarantees to an eligible State program, 

13 pursuant to subsection 5(a). 

14 (2) COVERED PERILS.—The term ‘‘covered 

15 peril’’ means a natural catastrophe peril specified in 

16 section 4(a)(4). 

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

18 means any loss resulting from a covered peril that 

19 is determined by an eligible State program as being 

20 covered by insurance or reinsurance made available 

21 under that eligible State program. 

22 (4) QUALIFYING ASSETS.—The term ‘‘quali23 fying assets’’ means, with respect to an eligible State 

24 program, the policyholder surplus of the State pro25 gram as stated in the most recent quarterly financial 


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1 statement filed by the program with the domiciliary 

2 regulator of the program for the last quarter ending 

3 before the event or events. 

4 (5) RESIDENTIAL PROPERTY INSURANCE.—The 

5 term ‘‘residential property insurance’’ means, with 

6 respect to an eligible State program, the following 

7 types of insurance coverage: 

8 (A) INDIVIDUALLY OWNED RESIDENTIAL

9 STRUCTURES.— 

10 (i) IN GENERAL.—(I) Insurance cov11 erage for individually owned residential 

12 structures of not more than 4 dwelling 

13 units, individually owned condominium 

14 units, or individually owned mobile homes, 

15 and the contents of any such units or 

16 homes, that are— 

17 (aa) located in the State; 

18 and 

19 (bb) used exclusively for res20 idential purposes; or 

21 (II) a tenant’s policy written to in22 clude personal contents of a residential 

23 unit located in the State. 

24 (ii) EXCLUSIONS.—Such term shall 

25 not include— 


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1 (I) insurance for real property or 

2 its contents used for any commercial, 

3 industrial, or business purpose, except 

4 a structure of not more than 4 dwell5 ing units rented for individual resi6 dential purposes; and 

7 (II) a policy that does not include 

8 any of the perils insured against in a 

9 standard fire policy or any of the per10 ils enumerated in section 4(a)(4). 

11 (B) COMMERCIAL RESIDENTIAL PROP12 ERTIES.—Insurance coverage for commercial 

13 residential properties, including properties 

14 owned by a condominium association or its 

15 members, properties owned by a cooperative as16 sociation, and apartment buildings. 

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

18 the Secretary of the Treasury. 

Æ 


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