I

106TH CONGRESS

1ST SESSION H. R. 21

To establish a Federal program to provide reinsurance for State disaster

insurance programs.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 6, 1999

Mr. LAZIO (for himself, Mr. MCCOLLUM, Mr. BENTSEN, Mr. LAFALCE, Mr.

BAKER, Mr. WEYGAND, Mr. SHERMAN, Mr. LEACH, Mrs. ROUKEMA, Mr.

CAMPBELL, Mr. METCALF, Mrs. KELLY, Mr. WELDON of Florida, Mr.

ACKERMAN, Mr. MALONEY of Connecticut, Ms. HOOLEY of Oregon, Mr.

COOKSEY, Mr. DREIER, Mr. YOUNG of Alaska, Mr. FROST, Mr. FARR of

California, Mr. MCCRERY, Mrs. MEEK of Florida, Ms. CHRISTIANGREEN, Mr. CANADY of Florida, Mr. CALVERT, Mr. SHAW, Mr.

CUNNINGHAM, Mr. EWING, Mr. DAVIS of Florida, Mr. PRICE of North

Carolina, Mr. MCKEON, Mr. BILIRAKIS, Mr. BOYD, Mrs. FOWLER, Mr.

LOBIONDO, Mr. BLUNT, Mr. LAHOOD, Mrs. THURMAN, Mr. WEXLER,

Ms. ROS-LEHTINEN, Mr. KNOLLENBERG, Mr. MICA, Mr. DEUTSCH, Mr.

STEARNS, Mr. TRAFICANT, and Mr. PORTER) introduced the following

bill; which was referred to the Committee on Banking and Financial

Services

A BILL

To establish a Federal program to provide reinsurance for

State disaster insurance programs.

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

2 This Act may be cited as the ‘‘Homeowners’ Insur3 ance Availability Act of 1999’’.

4 SEC. 2. CONGRESSIONAL FINDINGS.

5 The Congress finds that—

6 (1) the rising costs resulting from natural dis7 asters have placed a strain on homeowners’ insur8 ance markets in many areas, jeopardizing the ability

9 of many consumers to adequately insure their homes

10 and possessions;

11 (2) the lack of sufficient insurance capacity

12 threatens to increase the number of uninsured home13 owners, which, in turn, increases the risk of mort14 gage defaults and the strain on the Nation’s banking

15 system;

16 (3) some States have intervened to ensure the

17 continued availability of homeowners’ insurance for

18 all residents;

19 (4) it is appropriate that efforts to improve in20 surance availability be designed and implemented at

21 the State level;

22 (5) while State insurance programs may be ade23 quate to cover losses from most natural disasters, a

24 small percentage of events are likely to exceed the fi25 nancial capacity of these programs and the local in26 surance markets;
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1 (6) limited Federal reinsurance will improve the

2 effectiveness of State insurance programs and pri3 vate insurance markets and will increase the likeli4 hood that homeowners’ insurance claims will be fully

5 paid in the event of a large natural catastrophe;

6 (7) it is necessary to provide, on a temporary

7 basis, a Federal reinsurance program that will pro8 mote stability in the homeowners’ insurance market

9 in the short run and encourage the growth of rein10 surance capacity by the private and capital markets

11 as soon as practical;

12 (8) such Federal reinsurance program should

13 not remain in existence longer than necessary for

14 the private entities or the capital markets, or both,

15 to provide adequate reinsurance capacity to address

16 the current homeowners’ insurance market disloca17 tions caused by various disasters; and

18 (9) any Federal reinsurance program must be

19 founded upon sound actuarial principles and priced

20 in a manner that minimizes the potential impact on

21 the Treasury.

22 SEC. 3. PROGRAM AUTHORITY.

23 (a) IN GENERAL.—The Secretary of the Treasury

24 shall carry out a program under this Act to make reinsur25 ance coverage available through—
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1 (1) contracts for reinsurance coverage under

2 section 6, which shall be made available for purchase

3 only by eligible State programs; and

4 (2) contracts for reinsurance coverage under

5 section 7, which shall be made available for purchase

6 by purchasers under section 7(a)(1) only through

7 auctions under section 7(a).

8 (b) PURPOSE.—The program shall be designed to

9 make reinsurance coverage under this Act available to im10 prove the availability of homeowners’ insurance for the

11 purpose of facilitating the pooling, and spreading the risk,

12 of catastrophic financial losses from natural disasters and

13 to improve the solvency of homeowners’ insurance mar14 kets.

15 (c) CONTRACT PRINCIPLES.—Under the program

16 under this Act, the Secretary shall offer reinsurance cov17 erage through contracts with covered purchasers, which

18 contracts—

19 (1) shall not displace or compete with the pri20 vate insurance or reinsurance markets or capital

21 markets;

22 (2) shall minimize the administrative costs of

23 the Federal Government;

24 (3) shall, in the case of any contract under sec25 tion 6 for eligible State programs, provide coverage
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1 based solely on insured losses within the State of the

2 eligible State program purchasing the contract; and

3 (4) shall, in the case of any contract under sec4 tion 7 for purchase at auction, provide coverage

5 based solely on insured losses within the region es6 tablished pursuant to section 7(a) for which the auc7 tion is held.

8 SEC. 4. QUALIFIED LINES OF COVERAGE.

9 Each contract for reinsurance coverage made avail10 able under this Act shall provide insurance coverage

11 against residential property losses to homes (including

12 dwellings owned under condominium and cooperative own13 ership arrangements) and the contents of apartment

14 buildings.

15 SEC. 5. COVERED PERILS.

16 Each contract for reinsurance coverage made avail17 able under this Act shall cover losses that are—

18 (1) proximately caused by—

19 (A) earthquakes;

20 (B) perils ensuing from earthquakes, in21 cluding fire and tsunami;

22 (C) tropical cyclones having maximum sus23 tained winds of at least 74 miles per hour, in24 cluding hurricanes and typhoons; or

25 (D) volcanic eruptions; and
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1 (2) in the case only of a contract under section

2 6, insured by the eligible State program purchasing

3 the contract.

4 The Secretary shall, by regulation, define the natural dis5 aster perils under paragraph (1).

6 SEC. 6. CONTRACTS FOR REINSURANCE COVERAGE FOR

7 ELIGIBLE STATE PROGRAMS.

8 (a) ELIGIBLE STATE PROGRAMS.—A program shall

9 be eligible to purchase a contract under this section for

10 reinsurance coverage under this Act only if the program

11 is a State-operated program that complies with the follow12 ing requirements:

13 (1) PROGRAM DESIGN.—The program shall be a

14 State-operated—

15 (A) insurance program that offers coverage

16 for homes (which may include dwellings owned

17 under condominium and cooperative ownership

18 arrangements) and the contents of apartments

19 to State residents because of a finding by the

20 State insurance commissioner or other State

21 entity authorized to make such determination

22 that such a program is necessary in order to

23 provide for the continued availability of such

24 residential coverage for all residents; or
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1 (B) reinsurance program that is designed

2 to improve private insurance markets which

3 offer coverage for homes (which may include

4 dwellings owned under condominium and coop5 erative ownership arrangements) and the con6 tents of apartments because of a finding by the

7 State insurance commissioner or other State

8 entity authorized to make such determination

9 that such a program is necessary in order to

10 provide for the continued availability of such

11 residential coverage for all residents.

12 (2) TAX STATUS.—The program shall be struc13 tured and carried out in a manner so that the pro14 gram is exempt from all Federal taxation.

15 (3) COVERAGE.—The program shall cover only

16 a single peril.

17 (4) EARNINGS.—The program may not provide

18 for the redistribution of any part of any net profits

19 of the program to any insurer that participates in

20 the program.

21 (5) MITIGATION.—

22 (A) IN GENERAL.—The program shall in23 clude mitigation provisions that require that not

24 less than 10 percent of the net investment in25 come of the State insurance or reinsurance pro-
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1 gram be used for programs to mitigate losses

2 from natural disasters for which the State in3 surance or reinsurance program was estab4 lished. For purposes of this paragraph, mitiga5 tion shall include methods to reduce losses of

6 life and property.

7 (B) EXCEPTION.—Notwithstanding sub8 paragraph (A), in the case of any State for

9 which the Secretary has determined, pursuant

10 to a request by the State insurance commis11 sioner, that the 10 percent requirement under

12 subparagraph (A) will jeopardize the actuarial

13 soundness of the State program, subparagraph

14 (A) shall be applied by substituting ‘‘5 percent’’

15 for ‘‘10 percent’’.

16 (6) REQUIREMENTS REGARDING COVERAGE.—

17 (A) IN GENERAL.—The program—

18 (i) may not involve cross-subsidization

19 between any separate property and cas20 ualty lines covered under the program;

21 (ii) shall include provisions that au22 thorize the State insurance commissioner

23 or other State entity authorized to make

24 such a determination to terminate the pro25 gram if the insurance commissioner or
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1 other such entity determines that the pro2 gram is no longer necessary to ensure the

3 availability of homeowners’ insurance for

4 all State residents; and

5 (iii) shall provide that, for any insur6 ance coverage for homes (which may in7 clude dwellings owned under condominium

8 and cooperative ownership arrangements)

9 and the contents of apartments that is

10 made available under the State insurance

11 program and for any reinsurance coverage

12 for such insurance coverage made available

13 under the State reinsurance program, the

14 premium rates charged shall be amounts

15 that, at a minimum, are sufficient to cover

16 the full actuarial costs of such coverage,

17 based on consideration of the risks involved

18 and accepted actuarial and rate making

19 principles, anticipated administrative ex20 penses, and loss and loss-adjustment ex21 penses.

22 (B) APPLICABILITY.—This paragraph shall

23 apply to any program which, after January 1,

24 1999, commences offering insurance or reinsur25 ance coverage described in subparagraph (A) or
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1 (B), respectively, of paragraph (1), or effective

2 2 years after the date of enactment for any ex3 isting State program described in section 8.

4 (7) OTHER QUALIFICATIONS.—

5 (A) IN GENERAL.—The program shall have

6 been certified (for the year for which the cov7 erage is in effect) by the Secretary as in compli8 ance with regulations that shall be issued under

9 this paragraph by the Secretary, in consultation

10 with the National Commission on Catastrophe

11 Risks and Insurance Loss Costs established

12 under section 10. The regulations shall estab13 lish criteria for State programs to qualify to

14 purchase reinsurance under this section, which

15 are in addition to the requirements under the

16 other paragraphs of this subsection.

17 (B) CONTENTS.—The regulations issued

18 under this paragraph shall include requirements

19 that—

20 (i) the State program have public

21 members on its board of directors or have

22 an advisory board with public members;

23 (ii) insurance coverage made available

24 through the State program not supplant

25 coverage that is otherwise reasonably avail-
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1 able and affordable in the private insur2 ance market;

3 (iii) the State program provide ade4 quate insurance protection for the peril

5 covered, which shall include a range of

6 deductibles and premium costs that reflect

7 the applicable risk to eligible properties;

8 (iv) the insurance protection provided

9 by the State program is made available on

10 a nondiscriminatory basis to all qualifying

11 residents;

12 (v) the State, or the appropriate local

13 governments within the State, have cer14 tified that new construction insured by the

15 program complies with applicable building,

16 fire, and safety codes;

17 (vi) the State, or appropriate local

18 governments within the State, have in ef19 fect building, fire, and safety codes gen20 erally consistent with Federal Emergency

21 Management Agency guidelines designed to

22 reduce losses from the peril covered;

23 (vii) the State has taken actions to es24 tablish an insurance rate structure that
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1 takes into account measures to mitigate in2 surance losses; and

3 (viii) the State program complies with

4 such other requirements that the Secretary

5 considers necessary to carry out the pur6 poses of this Act.

7 (b) TERMS OF CONTRACTS.—Each contract under

8 this section for reinsurance coverage under this Act shall

9 be subject to the following terms and conditions:

10 (1) MATURITY.—The term of the contract shall

11 not exceed 1 year.

12 (2) PAYMENT CONDITION.—The contract shall

13 authorize claims payments for eligible losses only to

14 the eligible State program purchasing the coverage.

15 (3) RETAINED LOSSES REQUIREMENT.—The

16 contract shall pay eligible losses only if the total

17 amount of insurance claims for losses, which are

18 covered by qualified lines, occur to properties located

19 within the State covered by the contract, and result

20 from a single event of a covered peril, exceeds the

21 amount of retained losses provided under the con22 tract (pursuant to section 8(a)) purchased by the eli23 gible State program.

24 (4) MULTIPLE EVENTS.—The contract shall

25 cover any eligible losses from one or more covered
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1 events that may occur during the term of the con2 tract.

3 (5) TIMING OF ELIGIBLE LOSSES.—Eligible

4 losses under the contract shall include only insur5 ance claims for property covered by qualified lines

6 that are reported to the eligible State program with7 in the 3-year period beginning upon the event or

8 events for which payment under the contract is

9 made.

10 (6) PRICING.—

11 (A) DETERMINATION.—The cost of rein12 surance coverage under the contract shall be an

13 amount established by the Secretary as follows:

14 (i) RECOMMENDATIONS.—The Sec15 retary shall take into consideration the rec16 ommendations of the Commission in estab17 lishing the cost, but the cost may not be

18 less than the amount recommended by the

19 Commission.

20 (ii) FAIRNESS TO TAXPAYERS.—The

21 cost shall be established at a level that is

22 designed to return to the Federal Govern23 ment fair compensation for the risks being

24 borne by the people of the United States

25 and that takes into consideration the devel-
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1 opmental stage of empirical models of nat2 ural disasters and the capacity of private

3 markets to absorb insured losses from nat4 ural disasters.

5 (iii) SELF-SUFFICIENCY.—The rates

6 for reinsurance coverage shall be estab7 lished at a level that annually produces ex8 pected premiums which shall be sufficient

9 to pay the annualized cost of all claims,

10 loss adjustment expenses, and all adminis11 trative costs of reinsurance coverage of12 fered under this section.

13 (B) COMPONENTS.—The cost shall consist

14 of the following components:

15 (i) RISK-BASED PRICE.—A risk-based

16 price, which shall reflect the anticipated

17 annualized payout of the contract accord18 ing to the actuarial analysis and rec19 ommendations of the Commission.

20 (ii) RISK LOAD.—A risk load in an

21 amount that is not less than the risk-based

22 price under clause (i).

23 (iii) ADMINISTRATIVE COSTS.—A sum

24 sufficient to provide for the operation of

25 the Commission and the administrative ex-
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1 penses incurred by the Secretary in carry2 ing out this Act.

3 (7) REPAYMENT TERMS.—The contract shall

4 include a condition that requires that, in the event

5 that a covered purchaser receives payments for

6 qualifying claims that consist of amounts derived

7 from obligations issued under section 9(d), such cov8 ered purchaser shall continue to purchase the rein9 surance coverage provided under this Act, in

10 amounts that are at least as great as those imme11 diately before the Fund was credited with amounts

12 borrowed under section 9(d), until such borrowed

13 moneys, including interest, are repaid pursuant to

14 section 9(d)(5)(B).

15 (8) INFORMATION.—The contract shall contain

16 a condition providing that the Commission may re17 quire the State program that is covered to submit to

18 the Commission all information on the State pro19 gram relevant to the duties of the Commission, as

20 determined by the Secretary.

21 (9) EXHAUSTION OF COVERAGE.—

22 (A) IN GENERAL.—Each contract shall

23 provide that, if during the term of the contract

24 the coverage under the contract is exhausted

25 because of payment for losses from a covered
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1 event, the covered purchaser shall, during the

2 15-day period beginning upon the covered event

3 that causes exhaustion of the coverage under

4 the original contract, have an option to make

5 a single purchase of similar coverage for the re6 maining term of the contract under terms and

7 conditions similar to the original contract, but

8 reflecting a new loss cost estimate and at a cost

9 prorated based upon the remaining term.

10 (B) DISCRETION.—To facilitate making

11 available contracts pursuant to the exercise of

12 options under subparagraph (A), the Secretary

13 may make—

14 (i) any estimates and determinations

15 that may be necessary regarding whether

16 coverage under a contract is exhausted and

17 the amount of losses retained by a State

18 program;

19 (ii) any estimates and assumptions

20 necessary to establish the price, terms, and

21 conditions of a contract provided pursuant

22 to such an option; and

23 (iii) any subsequent adjustments to a

24 contract provided pursuant to the exercise

25 of such an option (including cancellation of
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1 the contract) to conform the price, terms,

2 and conditions in accordance with findings

3 by the Secretary regarding issues pre4 viously estimated and assumed by the Sec5 retary pursuant to clause (ii).

6 (10) OTHERS.—The contract shall contain such

7 other terms as the Secretary considers necessary to

8 carry out this Act and to ensure the long-term fi9 nancial integrity of the program under this Act.

10 (c) PRICE GOUGING PROTECTIONS.—Notwithstand11 ing any other provision of this section, a State-operated

12 program that otherwise meets the requirements of this

13 section shall be eligible to purchase a contract under this

14 section for reinsurance coverage made available under this

15 Act only if the Secretary determines that there are in ef16 fect, in such State, laws or regulations sufficient to pro17 hibit price gouging, during the term of such reinsurance

18 coverage, in any disaster area located within the State.

19 SEC. 7. AUCTION OF CONTRACTS FOR REINSURANCE COV20 ERAGE.

21 (a) AUCTION PROGRAM REQUIREMENTS.—The Sec22 retary shall carry out a program to auction contracts for

23 reinsurance coverage under this Act made available pursu24 ant to section 3(a)(2), which shall comply with the follow25 ing requirements:
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1 (1) PURCHASERS.—The auction program shall

2 provide for auctioning all contracts made available

3 under this section to private insurers and reinsurers,

4 State insurance and reinsurance programs, and

5 other interested entities.

6 (2) REGIONAL AUCTIONS.—The auction pro7 gram shall provide for auctions on a regional basis.

8 The Secretary shall divide the States into not less

9 than 6 regions for the purpose of holding such re10 gional auctions, which shall include separate regions

11 for all or part of the State of California and all or

12 part of the State of Florida. Auctions for each re13 gion shall be conducted not less often than annually.

14 (3) RESERVE PRICE.—In auctioning a contract

15 under this section for reinsurance coverage, the Sec16 retary shall set a reserve price as the lowest base

17 price for that contract, based upon the recommenda18 tions of the Commission. The reserve price shall be

19 determined on the basis of the following components:

20 (A) RISK-BASED PRICE.—A risk-based

21 price, which shall reflect the anticipated

22 annualized payout of the contract according to

23 the actuarial analysis and recommendations of

24 the Commission.
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1 (B) RISK LOAD.—A risk load in an

2 amount that is not less than the risk-based

3 price under subparagraph (A).

4 (C) ADMINISTRATIVE COSTS.—A sum suf5 ficient to provide for the operation of the Com6 mission and the administrative expenses in7 curred by the Secretary in carrying out this sec8 tion.

9 (D) MITIGATION.—An adjustment that

10 takes into account any efforts that are being

11 made to reduce losses to property in the region

12 in which the contract is being sold.

13 (4) OTHER REQUIREMENTS.—The Secretary

14 may establish such other requirements for the auc15 tion program as the Secretary considers necessary to

16 carry out this Act.

17 (b) CONTRACT TERMS AND CONDITIONS.—Each con18 tract for reinsurance coverage auctioned under the pro19 gram under this section shall include the following terms

20 and conditions:

21 (1) MATURITY.—The term of each such con22 tract shall not exceed 1 year.

23 (2) TRANSFERABILITY.—The contract shall at

24 all times be fully transferable, assignable, and divis25 ible.
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1 (3) MULTIPLE EVENTS.—The contract shall

2 contain the provisions described in section 6(b)(4).

3 (4) THRESHOLD OF COVERAGE.—Each contract

4 auctioned in a region established under subsection

5 (a)(2) shall provide that the covered purchaser may

6 receive a payment for losses covered under the con7 tract if, under a process specified in the contract,

8 the Secretary determines that the insurance industry

9 will, as a result of a single event of a covered peril,

10 incur losses within the coverage area for such region

11 that are covered by one or more lines of insurance

12 under section 5 in an aggregate amount, for such

13 event, greater than the level of retained losses speci14 fied in section 8.

15 (5) EXHAUSTION OF COVERAGE.—Each con16 tract shall contain the provisions described in section

17 6(b)(9).

18 (6) OTHERS.—The contract shall contain such

19 other terms as the Secretary considers necessary to

20 carry out this Act and to ensure the long-term fi21 nancial integrity of the program under this Act.

22 (c) PRICE GOUGING PROTECTIONS.—Notwithstand23 ing any other provision of this section, a contract for rein24 surance auctioned under this section shall provide reinsur25 ance coverage only for losses incurred for property located
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1 in a State for which the Secretary of the Treasury has

2 determined that there are in effect, in such State, laws

3 or regulations sufficient to prohibit price gouging, during

4 the term of such reinsurance coverage, in any disaster

5 area located within the State.

6 SEC. 8. MINIMUM LEVEL OF RETAINED LOSSES AND MAXI7 MUM FEDERAL LIABILITY.

8 (a) AVAILABLE LEVELS OF RETAINED LOSSES.—In

9 making reinsurance coverage available under this Act, the

10 Secretary shall make available for purchase contracts for

11 such coverage that require the sustainment of retained

12 losses from a single event of a covered peril (as required

13 under sections 6(b)(3) and 7(b)(4) for payment of eligible

14 losses) in various amounts, as the Secretary determines

15 appropriate and subject to the requirements under sub16 section (b).

17 (b) MINIMUM LEVEL OF RETAINED LOSSES.—

18 (1) CONTRACTS FOR STATE PROGRAMS.—Sub19 ject to paragraph (3) and notwithstanding any other

20 provision of this Act, a contract for reinsurance cov21 erage under section 6 for an eligible State program

22 that offers insurance or reinsurance coverage de23 scribed in subparagraph (A) or (B), respectively, of

24 section 6(a)(1) may not be made available or sold

25 unless the contract requires retained losses from a
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1 single event of a covered peril in the following

2 amount:

3 (A) IN GENERAL.—The State program

4 shall sustain an amount of retained losses of

5 not less than the greater of—

6 (i) $2,000,000,000;

7 (ii) the claims-paying capacity of the

8 eligible State program, as determined by

9 the Secretary; and

10 (iii) an amount, determined by the

11 Secretary in consultation with the Commis12 sion which is sufficient to cover eligible

13 losses in the State during a 12-month pe14 riod for all events having a likelihood of oc15 currence of once every 100 years.

16 (B) TRANSITION RULE FOR EXISTING

17 STATE PROGRAMS.—

18 (i) CLAIMS-PAYING CAPACITY.—Sub19 ject to clause (ii), in the case of any eligi20 ble State program that was offering insur21 ance or reinsurance coverage on the date

22 of the enactment of this Act and the

23 claims-paying capacity of which is greater

24 than $2,000,000,000 but less than an

25 amount determined for the State under
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1 subparagraph (A)(iii), the minimum level

2 of retained losses applicable under this

3 paragraph shall be the claims-paying ca4 pacity of such State program.

5 (ii) AGREEMENT.—Clause (i) shall

6 apply to a State program only if the State

7 program enters into a written agreement

8 with the Secretary that shall provide a

9 schedule for increasing the claims-paying

10 capacity of the State program to the

11 amount determined sufficient by the Sec12 retary under subparagraph (A)(iii) of this

13 subsection over a period not to exceed 5

14 years. The Secretary may extend the 5-

15 year period for not more than 2 additional

16 one-year periods if the Secretary deter17 mines that losses incurred by the State

18 program as a result of covered perils create

19 excessive hardship on the State program.

20 The Secretary shall consult with the appro21 priate officials of the State program re22 garding the required schedule and any po23 tential one-year extensions.

24 (C) TRANSITION RULE FOR NEW STATE

25 PROGRAMS.—
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1 (i) 100-YEAR EVENT.—The Secretary

2 may provide that, in the case of an eligible

3 State program that, after January 1,

4 1999, commences offering insurance or re5 insurance coverage, during the 5-year pe6 riod beginning on the date that reinsur7 ance coverage under section 6 is first made

8 available, the minimum level of retained

9 losses applicable under this paragraph

10 shall be the amount determined for the

11 State under subparagraph (A)(iii), except

12 that such minimum level shall be adjusted

13 annually as provided in clause (ii) of this

14 subparagraph.

15 (ii) ANNUAL ADJUSTMENT.—Each an16 nual adjustment under this clause shall in17 crease the minimum level of retained losses

18 applicable under this subparagraph to an

19 eligible State program described in clause

20 (i) in a manner such that—

21 (I) during the course of such 5-

22 year period, the applicable minimum

23 level of retained losses approaches the

24 minimum level that, under subpara25 graph (A), will apply to the eligible
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1 State program upon the expiration of

2 such period; and

3 (II) each such annual increase is

4 a substantially similar amount, to the

5 extent practicable.

6 (D) REDUCTION BECAUSE OF REDUCED

7 CLAIMS-PAYING CAPACITY.—

8 (i) AUTHORITY.—Notwithstanding

9 subparagraphs (A), (B), and (C) or the

10 terms contained in a contract for reinsur11 ance pursuant to such subparagraphs, if

12 the Secretary determines that the claims13 paying capacity of an eligible State pro14 gram has been reduced because of payment

15 for losses due to an event, the Secretary

16 may reduce the minimum level of retained

17 losses for the State commensurate with the

18 current capacity of the State program, as

19 determined by the Secretary, but in no

20 case may such minimum level be less than

21 $2,000,000,000.

22 (ii) TERM OF REDUCTION.—If the

23 minimum level of retained losses for an eli24 gible State program is reduced pursuant to

25 clause (i), upon the expiration of the 5-
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1 year period beginning upon such reduction

2 the minimum level of retained losses appli3 cable to such State program under a con4 tract for reinsurance coverage under sec5 tion 6 shall be increased to an amount not

6 less than the amount applicable to such

7 State program immediately before such re8 duction.

9 (E) CLAIMS-PAYING CAPACITY.—For pur10 poses of this paragraph, the claims-paying ca11 pacity of a State-operated insurance or reinsur12 ance program under section 6(a)(1) shall be de13 termined by the Secretary, in consultation with

14 the Commission, taking into consideration re15 tained losses to private insurers in the State in

16 an amount assigned by the State insurance

17 commissioner, the cash surplus of the program,

18 and the lines of credit, reinsurance, and other

19 financing mechanisms of the program estab20 lished by law.

21 (2) AUCTION CONTRACTS.—Subject to para22 graph (3) and notwithstanding any other provision

23 of this Act, a contract for reinsurance coverage may

24 not be made available or sold under section 7

25 through a regional auction unless the contract re-
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1 quires that the insurance industry in the region for

2 which the auction was conducted sustains a cumu3 lative amount of retained losses (in covered lines re4 sulting from covered perils) of not less than the

5 greater of—

6 (A) $2,000,000,000; and

7 (B) an amount, determined by the Sec8 retary in consultation with the Commission,

9 which is sufficient to cover eligible losses in the

10 region during a 12-month period for all events

11 having a likelihood of occurrence of once every

12 100 years.

13 (3) ANNUAL ADJUSTMENT.—The Secretary

14 may annually raise the minimum level of retained

15 losses established under paragraph (1) for an eligible

16 State program or under paragraph (2) for a region

17 to reflect, as determined by the Secretary—

18 (A) in the case of an eligible State pro19 gram, changes to the claims-paying capacity of

20 the program;

21 (B) changes in the capacity of the private

22 insurance and reinsurance market;

23 (C) increases in the market value of prop24 erties; or
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1 (D) such other situations as the Secretary

2 considers appropriate.

3 In making any determination under this paragraph

4 in the minimum level of retained losses, the Sec5 retary shall establish such level at an amount such

6 that the program under this Act for making reinsur7 ance coverage available does not displace or compete

8 with the private insurance or reinsurance markets or

9 capital markets, as determined by the Secretary.

10 (4) OPTIONAL ANNUAL INFLATIONARY ADJUST11 MENT.—The Secretary may, on an annual basis,

12 raise the minimum level of retained losses estab13 lished under paragraph (1) for each eligible State

14 program and under paragraph (2) for each region to

15 reflect the annual rate of inflation. Any such raise

16 shall be made in accordance with an inflation index

17 that the Secretary determines to be appropriate. The

18 first such raise may be made one year after con19 tracts for reinsurance coverage under this Act are

20 first made available for purchase.

21 (c) MAXIMUM FEDERAL LIABILITY.—

22 (1) IN GENERAL.—Notwithstanding any other

23 provision of law, the maximum amount paid for all

24 events in any single year by the Secretary pursuant

25 to claims under all contracts for reinsurance cov-
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1 erage under this Act shall not exceed the applicable

2 maximum amount for such year determined under

3 paragraph (2). If, in any single year, claims under

4 existing contracts for reinsurance coverage exceed

5 the applicable maximum amount, each claimant shall

6 receive a prorated portion of the amount available

7 for payment of claims.

8 (2) APPLICABLE MAXIMUM AMOUNT.—For pur9 poses of paragraph (1), the applicable maximum

10 amount shall be—

11 (A) for any year not referred to in sub12 paragraph (B), $25,000,000,000, except that

13 the Secretary shall annually adjust such

14 amount (as it may have been previously ad15 justed) to provide for inflation in accordance

16 with an inflation index that the Secretary deter17 mines to be appropriate; or

18 (B) for any year during the 4-year period

19 beginning on the date that contracts for rein20 surance coverage under this Act are first made

21 available for purchase, the dollar amount that

22 the Secretary shall establish and annually re23 vise, which may not in any event exceed

24 $25,000,000,000.
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1 (d) LIMITATION ON PERCENTAGE OF RISK IN EX2 CESS OF RETAINED LOSSES.—

3 (1) IN GENERAL.—The Secretary may not

4 make available for purchase contracts for reinsur5 ance coverage under this Act that represent more

6 than 50 percent of the risk of insured losses in ex7 cess of retained losses—

8 (A) in the case of a contract under section

9 6 for an eligible State program, for such State;

10 and

11 (B) in the case of a contract made avail12 able through a regional auction under section 7,

13 for such region.

14 (2) PAYOUT.—For purposes of this subsection,

15 the amount of payout from a reinsurance contract

16 shall be the amount of eligible losses multiplied by

17 the percentage in effect at the time under paragraph

18 (1).

19 SEC. 9. DISASTER REINSURANCE FUND.

20 (a) ESTABLISHMENT.—There is established within

21 the Treasury of the United States a fund to be known

22 as the Disaster Reinsurance Fund (in this section referred

23 to as the ‘‘Fund’’).

24 (b) CREDITS.—The Fund shall be credited with—
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1 (1) amounts received annually from the sale of

2 contracts for reinsurance coverage under this Act;

3 (2) any amounts borrowed under subsection

4 (d);

5 (3) any amounts earned on investments of the

6 Fund pursuant to subsection (e); and

7 (4) such other amounts as may be credited to

8 the Fund.

9 (c) USES.—Amounts in the Fund may be used only

10 to the extent approved in appropriation Acts and only for

11 the following purposes:

12 (1) CONTRACT PAYMENTS.—For payments to

13 covered purchasers under contracts for reinsurance

14 coverage for eligible losses under such contracts.

15 (2) COMMISSION COSTS.—To pay for the oper16 ating costs of the Commission.

17 (3) ADMINISTRATIVE EXPENSES.—To pay for

18 the administrative expenses incurred by the Sec19 retary in carrying out the reinsurance program

20 under this Act.

21 (4) TERMINATION.—Upon termination under

22 section 12, as provided in such section.

23 (d) BORROWING.—

24 (1) AUTHORITY.—To the extent that the

25 amounts in the Fund are insufficient to pay claims
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1 and expenses under subsection (c), the Secretary

2 may issue such obligations of the Fund as may be

3 necessary to cover the insufficiency and shall pur4 chase any such obligations issued.

5 (2) PUBLIC DEBT TRANSACTION.—For the pur6 pose of purchasing any such obligations, the Sec7 retary may use as a public debt transaction the pro8 ceeds from the sale of any securities issued under

9 chapter 31 of title 31, United States Code, and the

10 purposes for which securities are issued under such

11 chapter are hereby extended to include any purchase

12 by the Secretary of such obligations under this sub13 section.

14 (3) CHARACTERISTICS OF OBLIGATIONS.—Obli15 gations issued under this subsection shall be in such

16 forms and denominations, bear such maturities, bear

17 interest at such rate, and be subject to such other

18 terms and conditions, as the Secretary shall deter19 mine.

20 (4) TREATMENT.—All redemptions, purchases,

21 and sales by the Secretary of obligations under this

22 subsection shall be treated as public debt trans23 actions of the United States.
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1 (5) CONDITIONS.—The following conditions

2 shall apply to any obligations issued under this sub3 section:

4 (A) The Secretary may issue such obliga5 tions only to such extent and in such amounts

6 as are provided in appropriation Acts.

7 (B) Any obligations issued under this sub8 section shall be repaid, including interest, from

9 the Fund and shall be recouped from premiums

10 charged for reinsurance coverage provided

11 under this Act.

12 (e) INVESTMENT.—If the Secretary determines that

13 the amounts in the Fund are in excess of current needs,

14 the Secretary may invest such amounts as the Secretary

15 considers advisable in obligations issued or guaranteed by

16 the United States.

17 (f) PROHIBITION OF FEDERAL FUNDS.—Except for

18 amounts made available pursuant to subsection (d) and

19 section 10(h), no Federal funds shall be authorized or ap20 propriated for the Fund or for carrying out the reinsur21 ance program under this Act.
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1 SEC. 10. NATIONAL COMMISSION ON CATASTROPHE RISKS

2 AND INSURANCE LOSS COSTS.

3 (a) ESTABLISHMENT.—The Secretary shall establish

4 a commission to be known as the National Commission

5 on Catastrophe Risks and Insurance Loss Costs.

6 (b) DUTIES.—The Commission shall meet for the sole

7 purpose of advising the Secretary regarding the estimated

8 loss costs associated with the contracts for reinsurance

9 coverage available under this Act and carrying out the

10 functions specified in this Act.

11 (c) MEMBERS.—The Commission shall consist of not

12 more than 5 members, who shall be appointed by the Sec13 retary and shall be broadly representative of the public

14 interest. Members shall have no personal, professional, or

15 financial interest at stake in the deliberations of the Com16 mission. The membership of the Commission shall at all

17 times include at least 1 representative of a nationally rec18 ognized consumer organization.

19 (d) TREATMENT OF NON-FEDERAL MEMBERS.—

20 Each member of the Commission who is not otherwise em21 ployed by the Federal Government shall be considered a

22 special Government employee for purposes of sections 202

23 and 208 of title 18, United States Code.

24 (e) EXPERTS AND CONSULTANTS.— The Commission

25 may procure temporary and intermittent services under

26 section 3109(b) of title 5, United States Code, but at a
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1 rate not in excess of the daily equivalent of the annual

2 rate of basic pay payable for level V of the Executive

3 Schedule, for each day during which the individual pro4 cured is performing such services for the Commission.

5 (f) COMPENSATION.—Each member of the Commis6 sion who is not an officer or employee of the Federal Gov7 ernment shall be compensated at a rate of basic pay pay8 able for level V of the Executive Schedule, for each day

9 (including travel time) during which such member is en10 gaged in the performance of the duties of the Commission.

11 All members of the Commission who are officers or em12 ployees of the United States shall serve without compensa13 tion in addition to that received for their services as offi14 cers or employees of the United States.

15 (g) OBTAINING DATA.—The Commission and the

16 Secretary may solicit loss exposure data and such other

17 information either deems necessary to carry out its re18 sponsibilities from governmental agencies and bodies and

19 organizations that act as statistical agents for the insur20 ance industry. The Commission and the Secretary shall

21 take such actions as are necessary to ensure that informa22 tion that either deems is confidential or proprietary is dis23 closed only to authorized individuals working for the Com24 mission or the Secretary. No company which refuses to

25 provide information requested by the Commission or the
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1 Secretary may participate in the program for reinsurance

2 coverage authorized under this Act, nor may any State

3 participate if any governmental agency within that State

4 has refused to provide information requested by the Com5 mission or the Secretary.

6 (h) FUNDING.—

7 (1) AUTHORIZATION OF APPROPRIATIONS.—

8 There are authorized to be appropriated—

9 (A) $1,000,000 for fiscal year 1999 for the

10 initial expenses in establishing the Commission

11 and the initial activities of the Commission that

12 cannot timely be covered by amounts obtained

13 pursuant to sections 6(b)(6)(B)(iii) and

14 7(a)(4)(C), as determined by the Secretary; and

15 (B) such additional sums as may be nec16 essary to carry out subsequent activities of the

17 Commission.

18 (2) OFFSET.—The Secretary shall provide, to

19 the maximum extent practicable, that an amount

20 equal to any amount appropriated under paragraph

21 (1) is obtained from purchasers of reinsurance cov22 erage under this Act and deposited in the Fund es23 tablished under section 9. Such amounts shall be ob24 tained by inclusion of a provision for the Commis25 sion’s expenses incorporated into the pricing of the
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1 contracts for such reinsurance coverage, pursuant to

2 sections 6(b)(6)(B)(iii) and 7(a)(4)(C).

3 (i) TERMINATION.—The Commission shall terminate

4 upon the effective date of the repeal under section 12(c).

5 SEC. 11. DEFINITIONS.

6 For purposes of this Act, the following definitions

7 shall apply:

8 (1) COMMISSION.—The term ‘‘Commission’’

9 means the National Commission on Catastrophe

10 Risks and Insurance Loss Costs established under

11 section 10.

12 (2) COVERED PERILS.—The term ‘‘covered per13 ils’’ means the natural disaster perils under section

14 5.

15 (3) COVERED PURCHASER.—The term ‘‘covered

16 purchaser’’ means—

17 (A) with respect to reinsurance coverage

18 made available under a contract under section

19 6, the eligible State-operated insurance or rein20 surance program that purchases such coverage;

21 and

22 (B) with respect to reinsurance coverage

23 made available under a contract under section

24 7, the purchaser of the contract auctioned
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1 under such section or any subsequent holder or

2 holders of the contract.

3 (4) DISASTER AREA.—The term ‘‘disaster area’’

4 means a geographical area, with respect to which—

5 (A) a covered peril specified in section 5

6 has occurred; and

7 (B) a declaration that a major disaster ex8 ists, as a result of the occurrence of such

9 peril—

10 (i) has been made by the President of

11 the United States; and

12 (ii) is in effect.

13 (5) ELIGIBLE LOSSES.—The term ‘‘eligible

14 losses’’ shall be defined by the Secretary, after con15 sultation with the Commission.

16 (6) ELIGIBLE STATE PROGRAM.—The term ‘‘eli17 gible State program’’ means a State program that,

18 pursuant to section 6(a), is eligible to purchase rein19 surance coverage made available through contracts

20 under section 6.

21 (7) PRICE GOUGING.—The term ‘‘price

22 gouging’’ means the providing of any consumer good

23 or service by a supplier for a price that the supplier

24 knows or has reason to know is greater, by at least

25 the percentage set forth in a State law or regulation
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1 prohibiting such act (notwithstanding any real cost

2 increase due to any attendant business risk and

3 other reasonable expenses that result from the major

4 disaster involved), than the price charged by the

5 supplier for such consumer good or service imme6 diately before the disaster.

7 (8) QUALIFIED LINES.—The term ‘‘qualified

8 lines’’ means lines of insurance coverage for which

9 losses are covered under section 4 by reinsurance

10 coverage under this Act.

11 (9) REINSURANCE COVERAGE.—The term ‘‘re12 insurance coverage under this Act’’ includes cov13 erage under contracts made available under sections

14 6 and 7.

15 (10) SECRETARY.—The term ‘‘Secretary’’

16 means the Secretary of the Treasury.

17 (11) STATE.—The term ‘‘State’’ means the

18 States of the United States, the District of Colum19 bia, the Commonwealth of Puerto Rico, the Com20 monwealth of the Northern Mariana Islands, Guam,

21 the Virgin Islands, American Samoa, and any other

22 territory or possession of the United States.

23 SEC. 12. TERMINATION.

24 (a) IN GENERAL.—Except as provided in subsection

25 (b), the Secretary may not provide any reinsurance cov-
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1 erage under this Act covering any period after the expira2 tion of the 10-year period beginning on the date of the

3 enactment of this Act.

4 (b) EXTENSION.—If upon the expiration of the period

5 under subsection (a) the Secretary, in consultation with

6 the Commission, determines that continuation of the pro7 gram for reinsurance coverage under this Act is necessary

8 to carry out the purpose of this Act under section 3(b)

9 because of insufficient growth of capacity in the private

10 homeowners’ insurance market, the Secretary shall con11 tinue to provide reinsurance coverage under this Act until

12 the expiration of the 5-year period beginning upon the ex13 piration of the period under subsection (a).

14 (c) REPEAL.—Effective upon the date that reinsur15 ance coverage under this Act is no longer available or in

16 force pursuant to subsection (a) or (b), this title (except

17 for this section) is repealed.

18 (d) DEFICIT REDUCTION.—The Secretary shall cover

19 into the General Fund of the Treasury any amounts re20 maining in the Fund under section 9 upon the repeal of

21 this title.

22 SEC. 13. ANNUAL STUDY OF COST AND AVAILABILITY OF

23 DISASTER INSURANCE AND PROGRAM NEED.

24 (a) IN GENERAL.—The Secretary shall, on an annual

25 basis, conduct a study and submit to the Congress a public
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1 report on the cost and availability of homeowners’ insur2 ance for losses resulting from catastrophic natural disas3 ters covered by the reinsurance program under this Act.

4 (b) CONTENTS.—Each annual study under this sec5 tion shall determine and identify, on an aggregate basis—

6 (1) for each State or region, the capacity of the

7 private homeowners’ insurance market with respect

8 to coverage for losses from catastrophic natural dis9 asters;

10 (2) for each State or region, the percentage of

11 homeowners who have such coverage, the disasters

12 covered, and the average cost of such coverage;

13 (3) for each State or region, the progress that

14 private reinsurers and capital markets have made in

15 providing reinsurance for such homeowners’ insur16 ance;

17 (4) for each State or region, the effects of the

18 Federal reinsurance program under this Act on the

19 availability and affordability of such insurance; and

20 (5) the appropriate time for termination of the

21 Federal reinsurance program under this Act.

22 (c) TIMING.—Each annual report under this section

23 shall be submitted not later than March 30 of the year

24 after the year for which the study was conducted.
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1 (d) COMMENCEMENT OF REPORTING REQUIRE2 MENT.—The Secretary shall first submit an annual report

3 under this section 2 years after the date of the enactment

4 of this Act.

Æ