Union Calendar No. 292

106TH CONGRESS

2D SESSION H. R. 21

[Report No. 106–526]

A BILL

To establish a Federal program to provide

reinsurance for State disaster insurance programs.

MARCH 15, 2000

Reported with an amendment, committed to the Committee of the Whole House on the State of the Union,

and ordered to be printed
IB

Union Calendar No. 292

106TH CONGRESS

2D SESSION H. R. 21

[Report No. 106–526]

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

MARCH 15, 2000

Additional sponsors: Mr. DIAZ-BALART, Mr. LATOURETTE, Mr. HASTINGS of

Florida, Mr. FOLEY, Mr. WELDON of Pennsylvania, Ms. VELA ́

ZQUEZ, Mr.

MARTINEZ, Mr. DICKEY, Mr. RADANOVICH, Mr. PICKETT, Mr. HERGER,

Mr. SMITH of Washington, Mr. WELLER, Mr. PALLONE, Mr. DOOLEY of

California, Mr. OSE, Mr. LEWIS of Kentucky, Mr. CRANE, Ms. SANCHEZ,

Mr. DEAL of Georgia, Mrs. EMERSON, Mr. GEKAS, Mr. TALENT, Mr.

CLYBURN, Mr. FILNER, Mr. QUINN, Mr. MINGE, Mr. GARY MILLER of

California, Mr. WISE, Mr. RILEY, Mr. POMBO, Mr. LARSON, Mr. ANDREWS, Mr. CALLAHAN, Mr. SHOWS, Mr. RAHALL, Mr. NETHERCUTT,

Mr. THORNBERRY, Mr. COOK, Mr. MATSUI, Mr. SPENCE, Mr. SESSIONS,

Mr. TANNER, Mr. KING, Mr. BERMAN, Mrs. MYRICK, Mr. SCARBOROUGH, Mr. MOLLOHAN, Mr. MCINTYRE, Mr. ETHERIDGE, Mr.
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DOYLE, Mr. MCINTOSH, Mr. JOHN, Ms. BROWN of Florida, Mr. JONES

of North Carolina, Mr. HULSHOF, Mr. SANDLIN, Mr. GORDON, Mr.

VITTER, Mrs. BIGGERT, Mr. MANZULLO, Mr. FRANKS of New Jersey,

Mr. FORBES, Mr. MASCARA, and Mr. MEEKS of New York

MARCH 15, 2000

Reported with an amendment, committed to the Committee of the Whole

House on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on January 6, 1999]

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,

3 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

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

5 ‘‘Homeowners’ Insurance Availability Act of 2000’’.

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. Program authority.

Sec. 4. Qualified lines of coverage.

Sec. 5. Covered perils.

Sec. 6. Contracts for reinsurance coverage for eligible State programs.

Sec. 7. Auction of contracts for reinsurance coverage.

Sec. 8. Anti-redlining requirement.

Sec. 9. Minimum level of retained losses and maximum Federal liability.

Sec. 10. Disaster Reinsurance Fund.

Sec. 11. National Commission on Catastrophe Risks and Insurance Loss Costs.

Sec. 12. Definitions.

Sec. 13. Regulations.

Sec. 14. Termination.

Sec. 15. Annual study of cost and availability of disaster insurance and program

need.

Sec. 16. GAO study of hurricane related flooding.
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1 SEC. 2. CONGRESSIONAL FINDINGS.

2 The Congress finds that—

3 (1) the rising costs resulting from natural disas4 ters have placed a strain on homeowners’ insurance

5 markets in many areas, jeopardizing the ability of

6 many consumers to adequately insure their homes

7 and possessions;

8 (2) the lack of sufficient insurance capacity

9 threatens to increase the number of uninsured home10 owners, which, in turn, increases the risk of mortgage

11 defaults and the strain on the Nation’s banking sys12 tem;

13 (3) some States have intervened to ensure the

14 continued availability of homeowners’ insurance for

15 all residents;

16 (4) it is appropriate that efforts to improve in17 surance availability be designed and implemented at

18 the State level;

19 (5) while State insurance programs may be ade20 quate to cover losses from most natural disasters, a

21 small percentage of events are likely to exceed the fi22 nancial capacity of these programs and the local in23 surance markets;

24 (6) limited Federal reinsurance will improve the

25 effectiveness of State insurance programs and private

26 insurance markets and will increase the likelihood
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1 that homeowners’ insurance claims will be fully paid

2 in the event of a large natural catastrophe;

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

4 basis, a Federal reinsurance program that will pro5 mote stability in the homeowners’ insurance market

6 in the short term and encourage the growth of rein7 surance capacity by the private and capital markets

8 as soon as practicable;

9 (8) such a Federal reinsurance program should

10 not remain in existence longer than necessary for the

11 private entities or the capital markets, or both, to

12 provide adequate reinsurance capacity to address the

13 current homeowners’ insurance market dislocations

14 caused by various disasters; and

15 (9) any Federal reinsurance program must be

16 founded upon sound actuarial principles and priced

17 in a manner that minimizes the potential impact on

18 the Treasury.

19 SEC. 3. PROGRAM AUTHORITY.

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

21 carry out a program under this Act to make reinsurance

22 coverage available through—

23 (1) contracts for reinsurance coverage under sec24 tion 6, which shall be made available for purchase

25 only by eligible State programs; and
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1 (2) contracts for reinsurance coverage under sec2 tion 7, which shall be made available for purchase by

3 purchasers under section 7(a)(1) only through auc4 tions under section 7(a).

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

6 reinsurance coverage under this Act available to improve

7 the availability of homeowners’ insurance for the purpose

8 of facilitating the pooling, and spreading the risk, of cata9 strophic financial losses from natural disasters and to im10 prove the solvency of homeowners’ insurance markets.

11 (c) CONTRACT PRINCIPLES.—Under the program

12 under this Act, the Secretary shall offer reinsurance cov13 erage through contracts with covered purchasers, which

14 contracts—

15 (1) shall not displace or compete with the private

16 insurance or reinsurance markets or capital markets;

17 (2) shall minimize the administrative costs of the

18 Federal Government;

19 (3) shall, in the case of any contract under sec20 tion 6 for an eligible State program, provide coverage

21 based solely on insured losses within the State of the

22 eligible State program purchasing the contract; and

23 (4) shall, in the case of any contract under sec24 tion 7 for purchase at auction, provide coverage based
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1 solely on insured losses within the region established

2 pursuant to section 7(a) for which the auction is held.

3 SEC. 4. QUALIFIED LINES OF COVERAGE.

4 Each contract for reinsurance coverage made available

5 under this Act shall provide insurance coverage against res6 idential property losses to homes (including dwellings

7 owned under condominium and cooperative ownership ar8 rangements) and the contents of apartment buildings.

9 SEC. 5. COVERED PERILS.

10 Each contract for reinsurance coverage made available

11 under this Act shall cover losses that are—

12 (1) proximately caused by—

13 (A) earthquakes;

14 (B) perils ensuing from earthquakes, includ15 ing fire and tsunamis;

16 (C) tropical cyclones having maximum sus17 tained winds of at least 74 miles per hour, in18 cluding hurricanes and typhoons;

19 (D) tornadoes; or

20 (E) volcanic eruptions; and

21 (2) in the case only of a contract under section

22 6, insured or reinsured by the eligible State program

23 purchasing the contract.

24 The Secretary shall, by regulation, define the natural dis25 aster perils under paragraph (1).
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1 SEC. 6. CONTRACTS FOR REINSURANCE COVERAGE FOR EL2 IGIBLE STATE PROGRAMS.

3 (a) ELIGIBLE STATE PROGRAMS.—A program shall be

4 eligible to purchase a contract under this section for rein5 surance coverage under this Act only if the State entity au6 thorized to make such determinations certifies to the Sec7 retary that the program is a State-operated program that

8 complies with the following requirements:

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

10 State-operated—

11 (A) insurance program that—

12 (i) offers coverage for homes (which

13 may include dwellings owned under condo14 minium and cooperative ownership ar15 rangements) and the contents of apartments

16 to State residents because of a finding by

17 the State insurance commissioner or other

18 State entity authorized to make such deter19 mination that such a program is necessary

20 in order to provide for the continued avail21 ability of such residential coverage for all

22 residents; and

23 (ii) is authorized by State law; or

24 (B) reinsurance program that is designed to

25 improve private insurance markets that offer

26 coverage for homes (which may include dwellings
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1 owned under condominium and cooperative own2 ership arrangements) and the contents of apart3 ments because of a finding by the State insur4 ance commissioner or other State entity author5 ized to make such determination that such a pro6 gram is necessary in order to provide for the

7 continued availability of such residential cov8 erage for all residents.

9 (2) OPERATION.—The program shall meet the

10 following requirements:

11 (A) A majority of the members of the gov12 erning body of the program shall be public offi13 cials.

14 (B) The State shall have a financial interest

15 in the program, which shall not include a pro16 gram authorized by State law or regulation that

17 requires insurers to pool resources to provide

18 property insurance coverage for covered perils.

19 (3) TAX STATUS.—The program shall be struc20 tured and carried out in a manner so that the pro21 gram is exempt from all Federal taxation.

22 (4) COVERAGE.—The program shall cover only a

23 single peril.

24 (5) EARNINGS.—The program may not provide

25 for, nor shall have ever made, any redistribution of
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1 any part of any net profits of the program to any

2 insurer that participates in the program.

3 (6) MITIGATION.—

4 (A) IN GENERAL.—The program shall in5 clude mitigation provisions that require that not

6 less than 10 percent of the net investment income

7 of the State insurance or reinsurance program be

8 used for programs to mitigate losses from nat9 ural disasters for which the State insurance or

10 reinsurance program was established. For pur11 poses of this paragraph, mitigation shall include

12 methods to reduce losses of life and property.

13 (B) EXCEPTION.—Notwithstanding sub14 paragraph (A), in the case of any State for

15 which the Secretary has determined, pursuant to

16 a request by the State insurance commissioner,

17 that the 10 percent requirement under subpara18 graph (A) will jeopardize the actuarial sound19 ness of the State program, subparagraph (A)

20 shall be applied by substituting ‘‘5 percent’’ for

21 ‘‘10 percent’’.

22 (7) REQUIREMENTS REGARDING COVERAGE.—

23 (A) IN GENERAL.—The program—

24 (i) may not involve cross-subsidization

25 between any separate property and casualty
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1 lines covered under the program unless the

2 elimination of such activity in an existing

3 program would negatively impact the eligi4 bility of the program to purchase a contract

5 for reinsurance coverage under this Act pur6 suant to paragraph (3);

7 (ii) shall include provisions that au8 thorize the State insurance commissioner or

9 other State entity authorized to make such

10 a determination to terminate the program if

11 the insurance commissioner or other such

12 entity determines that the program is no

13 longer necessary to ensure the availability

14 of homeowners’ insurance for all State resi15 dents; and

16 (iii) shall provide that, for any insur17 ance coverage for homes (which may include

18 dwellings owned under condominium and

19 cooperative ownership arrangements) and

20 the contents of apartments that is made

21 available under the State insurance pro22 gram and for any reinsurance coverage for

23 such insurance coverage made available

24 under the State reinsurance program, the

25 premium rates charged shall be amounts
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1 that, at a minimum, are sufficient to cover

2 the full actuarial costs of such coverage,

3 based on consideration of the risks involved

4 and accepted actuarial and rate making

5 principles, anticipated administrative ex6 penses, and loss and loss-adjustment ex7 penses.

8 (B) APPLICABILITY.—This paragraph shall

9 apply—

10 (i) before the expiration of the 2-year

11 period beginning on the date of the enact12 ment of this Act, only to State programs

13 which, after January 1, 1999, commence of14 fering insurance or reinsurance coverage de15 scribed in subparagraph (A) or (B), respec16 tively, of paragraph (1); and

17 (ii) after the expiration of such period,

18 to all State programs.

19 (8) OTHER QUALIFICATIONS.—

20 (A) IN GENERAL.—The State program shall

21 (for the year for which the coverage is in effect)

22 comply with regulations that shall be issued

23 under this paragraph by the Secretary, in con24 sultation with the National Commission on Ca25 tastrophe Risks and Insurance Loss Costs estab-
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1 lished under section 11. The regulations shall es2 tablish criteria for State programs to qualify to

3 purchase reinsurance under this section, which

4 are in addition to the requirements under the

5 other paragraphs of this subsection.

6 (B) CONTENTS.—The regulations issued

7 under this paragraph shall include requirements

8 that—

9 (i) the State program have public

10 members on its board of directors or have

11 an advisory board with public members;

12 (ii) insurance or reinsurance coverage,

13 as applicable, made available through the

14 State program not supplant coverage that is

15 otherwise reasonably available and afford16 able in the private market;

17 (iii) the State program provide ade18 quate insurance or reinsurance protection,

19 as applicable, for the peril covered, which

20 shall include a range of deductibles and pre21 mium costs that reflect the applicable risk

22 to eligible properties;

23 (iv) insurance or reinsurance coverage,

24 as applicable, provided by the State pro-
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1 gram is made available on a nondiscrim2 inatory basis to all qualifying residents;

3 (v) any new construction, substantial

4 rehabilitation, and renovation insured or

5 reinsured by the program complies with ap6 plicable State or local government building,

7 fire, and safety codes;

8 (vi) the State, or appropriate local

9 governments within the State, have in effect

10 and enforce nationally recognized model

11 building, fire, and safety codes and con12 sensus-based standards that offer disaster

13 resistance that is substantially equivalent or

14 greater than the resistance under any re15 quirements for floods, earthquakes, or wind

16 resistance issued by the Federal Emergency

17 Management Agency;

18 (vii) the State has taken actions to es19 tablish an insurance rate structure that

20 takes into account measures to mitigate in21 surance losses;

22 (viii) there are in effect, in such State,

23 laws or regulations sufficient to prohibit

24 price gouging, during the term of reinsur25 ance coverage under this Act for the State
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1 program, in any disaster area located with2 in the State; and

3 (ix) 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 this

8 section for reinsurance coverage under this Act shall be sub9 ject to the following terms and conditions:

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

11 not exceed 1 year or such other term as the Secretary

12 may determine.

13 (2) PAYMENT CONDITION.—The contract shall

14 authorize claims payments for eligible losses only to

15 the eligible State program purchasing the coverage.

16 (3) RETAINED LOSSES REQUIREMENT.—For each

17 event of a covered peril, the contract shall make a

18 payment for the event only if the total amount of in19 surance claims for losses, which are covered by quali20 fied lines, occur to properties located within the State

21 covered by the contract, and result from the event, ex22 ceeds the amount of retained losses provided under the

23 contract (pursuant to section 9(a)) purchased by the

24 eligible State program.
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1 (4) MULTIPLE EVENTS.—The contract shall cover

2 any eligible losses from one or more covered events

3 that may occur during the term of the contract and

4 shall provide that if multiple events occur, the re5 tained losses requirement under paragraph (3) shall

6 apply to each event.

7 (5) TIMING OF ELIGIBLE LOSSES.—Eligible

8 losses under the contract shall include only insurance

9 claims for property covered by qualified lines that are

10 reported to the eligible State program within the 3-

11 year period beginning upon the event or events for

12 which payment under the contract is provided.

13 (6) PRICING.—

14 (A) DETERMINATION.—The price of reinsur15 ance coverage under the contract shall be an

16 amount established by the Secretary as follows:

17 (i) RECOMMENDATIONS.—The Sec18 retary shall take into consideration the rec19 ommendations of the Commission in estab20 lishing the price, but the price may not be

21 less than the amount recommended by the

22 Commission.

23 (ii) FAIRNESS TO TAXPAYERS.—The

24 price shall be established at a level that is

25 designed to return to the Federal Govern-
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1 ment fair compensation for the risks and

2 costs being borne by the people of the United

3 States and that takes into consideration the

4 developmental stage of empirical models of

5 natural disasters and the capacity of pri6 vate markets to absorb insured losses from

7 natural disasters.

8 (iii) SELF-SUFFICIENCY.—The rates

9 for reinsurance coverage shall be established

10 at a level that annually produces expected

11 premiums which shall be sufficient to pay

12 the expected annualized cost of all claims,

13 loss adjustment expenses, and all adminis14 trative costs of reinsurance coverage offered

15 under this section.

16 (B) COMPONENTS.—The price shall consist

17 of the following components:

18 (i) RISK-BASED PRICE.—A risk-based

19 price, which shall reflect the anticipated

20 annualized payout of the contract according

21 to the actuarial analysis and recommenda22 tions of the Commission.

23 (ii) RISK LOAD.—A risk load in an

24 amount that is not less than the risk-based

25 price under clause (i). In establishing risk
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1 loads under this clause, the Secretary shall

2 take into consideration comparable private

3 risk loads.

4 (iii) ADMINISTRATIVE COSTS.—A sum

5 sufficient to provide for the operation of the

6 Commission and the administrative ex7 penses incurred by the Secretary in car8 rying out this Act.

9 (7) INFORMATION.—The contract shall contain a

10 condition providing that the Commission may require

11 the State program that is covered under the contract

12 to submit to the Commission all information on the

13 State program relevant to the duties of the Commis14 sion, as determined by the Secretary.

15 (8) ADDITIONAL CONTRACT OPTION.—The con16 tract shall provide that the purchaser of the contract

17 may, during the term of such original contract, pur18 chase additional contracts from among those offered

19 by the Secretary at the beginning of the term, subject

20 to the limitations under section 9, at the prices at

21 which such contracts were offered at the beginning of

22 the term, prorated based upon the remaining term as

23 determined by the Secretary. Such additional con24 tracts shall provide coverage beginning on a date 15

25 days after the date of purchase but shall not provide
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1 coverage for losses for an event that has already oc2 curred.

3 (9) OTHERS.—The contract shall contain such

4 other terms as the Secretary considers necessary to

5 carry out this Act and to ensure the long-term finan6 cial integrity of the program under this Act.

7 (c) PRIVATE SECTOR RIGHT TO PARTICIPATE.—

8 (1) ESTABLISHMENT OF COMPETITIVE PROCE9 DURE.—The Secretary shall establish, by regulation,

10 a competitive procedure under this subsection that

11 provides qualified entities an opportunity, on a basis

12 consistent with the contract cycle established under

13 this Act by the Secretary, to offer to provide, in lieu

14 of reinsurance coverage under this section, reinsur15 ance coverage that is substantially similar to coverage

16 otherwise made available under this section.

17 (2) COMPETITIVE PROCEDURE.—Under the pro18 cedure established under this subsection—

19 (A) the Secretary shall establish criteria for

20 private insurers, reinsurers, and capital market

21 companies, and consortia of such entities to be

22 treated as qualified entities for purposes of this

23 subsection, which criteria shall require such an

24 entity to have at all times capital sufficient to

25 satisfy the terms of the reinsurance contracts and
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1 shall include such other industry and credit rat2 ing standards as the Secretary considers appro3 priate;

4 (B) not less than 30 days before the begin5 ning of each contract cycle during which any re6 insurance coverage under this section is to be

7 made available, the Secretary may request pro8 posals and shall publish in the Federal Register

9 the rates and terms for contracts for reinsurance

10 coverage under this section that are to be made

11 available during such contract cycle;

12 (C) the Secretary shall provide qualified en13 tities a period of not less than 10 days (which

14 shall terminate not less than 20 days before the

15 beginning of the contract cycle) to submit to the

16 Secretary a written expression of interest in pro17 viding reinsurance coverage in lieu of the cov18 erage otherwise to be made available under this

19 section;

20 (D) the Secretary shall provide any quali21 fied entity submitting an expression of interest

22 during the period referred to in subparagraph

23 (C) a period of not less than 20 days (which

24 shall terminate before the beginning of the con25 tract cycle) to submit to the Secretary an offer
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1 to provide, in lieu of the reinsurance coverage

2 otherwise to be made available under this sec3 tion, coverage that is substantially similar to

4 such coverage;

5 (E) if the Secretary determines that an offer

6 submitted during the period referred to in sub7 paragraph (D) is a bona fide offer to provide re8 insurance coverage during the contract cycle at

9 rates and terms that are substantially similar to

10 the rates and terms for reinsurance coverage oth11 erwise to be provided under this section by the

12 Secretary, the Secretary shall accept the offer (if

13 still outstanding) and, notwithstanding any

14 other provision of this Act, provide for such enti15 ty to make reinsurance coverage available in ac16 cordance with the offer; and

17 (F) if the Secretary accepts an offer pursu18 ant to subparagraph (E) to make reinsurance

19 coverage available, notwithstanding any other

20 provision of this Act, the Secretary shall reduce,

21 to an equivalent extent, the amount of reinsur22 ance coverage available under this section during

23 the contract cycle to which the offer relates, un24 less and until the Secretary determines that the
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1 entity is not complying with the terms of the ac2 cepted offer.

3 SEC. 7. AUCTION OF CONTRACTS FOR REINSURANCE COV4 ERAGE.

5 (a) AUCTION PROGRAM REQUIREMENTS.—The Sec6 retary shall carry out a program to auction contracts for

7 reinsurance coverage under this Act made available pursu8 ant to section 3(a)(2), which shall comply with the fol9 lowing requirements:

10 (1) PURCHASERS.—The auction program shall

11 provide for auctioning all contracts made available

12 under this section to private insurers and reinsurers,

13 State insurance and reinsurance programs, and other

14 interested entities.

15 (2) REGIONAL AUCTIONS.—The auction program

16 shall provide for auctions on a regional basis. The

17 Secretary shall divide the States into not less than 6

18 regions for the purpose of holding such regional auc19 tions, which shall include separate regions for all or

20 part of the State of California and all or part of the

21 State of Florida. In determining the boundaries for

22 such regions, the Secretary shall consider which areas

23 have greater risks of losses from covered perils and

24 which areas have lesser risks of losses from covered

25 perils, and shall attempt not to combine those dif-
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1 ferent types of areas. Auctions for each region shall be

2 conducted not less often than annually.

3 (3) RESERVE PRICE.—In auctioning contracts

4 under this section for reinsurance coverage, the Sec5 retary shall set, for each contract, a reserve price that

6 is the minimum price at which the contract may be

7 sold, based upon the recommendations of the Commis8 sion. The reserve price shall be determined on the

9 basis of the following components:

10 (A) RISK-BASED PRICE.—A risk-based

11 price, which shall reflect the anticipated

12 annualized payout of the contract according to

13 the actuarial analysis and recommendations of

14 the Commission.

15 (B) RISK LOAD.—A risk load in an amount

16 that is not less than the risk-based price under

17 subparagraph (A).

18 (C) ADMINISTRATIVE COSTS.—A sum suffi19 cient to provide for the operation of the Commis20 sion and the administrative expenses incurred by

21 the Secretary in carrying out this section.

22 (D) MITIGATION.—An adjustment based on

23 an actuarial analysis that takes into account

24 any efforts that are being made to reduce losses
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1 to property in the region in which the contract

2 is being sold.

3 (4) PRICE GOUGING PROTECTIONS.—The auction

4 program may provide reinsurance coverage for losses

5 incurred only for property located in a State for

6 which the State entity authorized to make such deter7 minations has certified to the Secretary that there are

8 in effect, in such State, laws or regulations sufficient

9 to prohibit price gouging, during the term of such re10 insurance coverage, in any disaster area located with11 in the State.

12 (5) MITIGATION REQUIREMENTS.—

13 (A) IN GENERAL.—The auction program

14 shall require each purchaser of a contract that is

15 not an eligible State program, as a condition of

16 such purchase, to contribute an amount, that the

17 Secretary (in consultation with the Director of

18 the Federal Emergency Management Agency)

19 shall establish and which shall not exceed 5 per20 cent of the price paid for the contract, to commu21 nities that—

22 (i) are located in the State in which

23 the reinsurance coverage under the contract

24 is provided (or in the case of multiple
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1 States, among such States, as determined by

2 the Secretary);

3 (ii) are designated by the Director of

4 the Federal Emergency Management Agency

5 and the appropriate emergency manage6 ment agency for the State as Project Impact

7 communities (for purposes of the pre-dis8 aster mitigation program of such Agency);

9 and

10 (iii) are participating in such pro11 grams or initiatives as the Secretary may

12 require that provide incentives for construc13 tion of structures and communities that are

14 resistant to damage from covered perils,

15 which shall include the Building Code Ef16 fectiveness Grading Schedule of the Insur17 ance Services Office.

18 (B) USE OF CONTRIBUTIONS.—Amounts

19 contributed to communities pursuant to the re20 quirement under subparagraph (A) shall be used

21 only—

22 (i) for activities to reduce losses from

23 covered perils to properties covered under

24 the reinsurance contract purchased under
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1 the auction program that are located in

2 such communities; and

3 (ii) in accordance with such require4 ments as the Secretary, in consultation with

5 the Director of the Federal Emergency Man6 agement Agency and appropriate State

7 agencies, shall establish to ensure cost-effec8 tive use of such amounts.

9 (C) ALLOCATION.—The Secretary, in con10 sultation with the Director of the Federal Emer11 gency Management Agency, shall establish re12 quirements for allocation of contributions among

13 communities eligible under subparagraph (A) to

14 receive such contributions.

15 (6) OTHER REQUIREMENTS.—The Secretary may

16 establish such other requirements for the auction pro17 gram as the Secretary considers necessary to carry

18 out this Act.

19 (b) CONTRACT TERMS AND CONDITIONS.—Each con20 tract for reinsurance coverage auctioned under the program

21 under this section shall include the following terms and con22 ditions:

23 (1) MATURITY.—The term of each such contract

24 shall not exceed 1 year or such other term as the Sec25 retary may determine.
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1 (2) TRANSFERABILITY.—The contract shall at all

2 times be fully transferable, assignable, and divisible.

3 (3) THRESHOLD OF COVERAGE.—The contract

4 shall provide that the covered purchaser may receive

5 a payment for losses covered under the contract if,

6 under a process specified in the contract, the Sec7 retary determines that the insurance industry will, as

8 a result of a single event of a covered peril, incur

9 losses within the coverage area for the region estab10 lished under subsection (a)(2) for which the contract

11 was auctioned that are covered by one or more lines

12 of insurance under section 5 in an aggregate amount,

13 for such event, greater than the level of retained losses

14 specified in section 9.

15 (4) MULTIPLE EVENTS.—The contract shall con16 tain the provisions described in section 6(b)(4).

17 (5) ADDITIONAL CONTRACT OPTION.—The con18 tract shall contain the provisions described in section

19 6(b)(8).

20 (6) SUBMISSION OF INFORMATION.—The contract

21 shall include terms that—

22 (A) require the purchaser to notify the Sec23 retary of any sale, transfer, assignment, or divi24 sion of the contract or any interest in the con-
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1 tract, identify the interest involved, and identify

2 the price paid or compensation provided; and

3 (B) authorize the disclosures required under

4 subsection (c)(2).

5 (7) OTHERS.—The contract shall contain such

6 other terms as the Secretary considers necessary to

7 carry out this Act and to ensure the long-term finan8 cial integrity of the program under this Act.

9 (c) GAO AUDIT.—

10 (1) IN GENERAL.—For each fiscal year, the

11 Comptroller General of the United States shall con12 duct an audit of prices for contracts made available

13 under the auction program under this section during

14 such fiscal year that determines—

15 (A) the reserve prices established for such

16 contracts;

17 (B) the prices paid for such contracts that

18 are purchased;

19 (C) the prices paid, or compensation pro20 vided, in any sales, transfers, assignments, or di21 visions of any such contracts (or any interests in

22 such contracts) in the secondary market or to

23 any third party; and

24 (D) pursuant to the information obtained

25 under subparagraphs (A) through (C), the appro-
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1 priate reserve prices for such contracts that are

2 to be made available in the succeeding fiscal

3 year.

4 (2) USE OF INFORMATION.—The Secretary shall

5 provide any information referred to in subsection

6 (b)(6) that is obtained by the Secretary to the Comp7 troller General, the Director of the Congressional

8 Budget Office, and the Director of the Office of Man9 agement and Budget, and shall make such informa10 tion publicly available. The Secretary, the Director of

11 the Congressional Budget Office, the Director of the

12 Office of Management and Budget shall each take

13 such information into consideration in preparing any

14 budget, report, estimate, or recommendation to the ex15 tent it relates to the auction program under this sec16 tion, and in any determinations relating to the Budg17 et of the United States or the concurrent resolution on

18 the budget (as such term is defined in section 3 of the

19 Congressional Budget Act of 1974). The Secretary

20 shall take such information into consideration in es21 tablishing reserve prices for contracts made available

22 under this section.

23 SEC. 8. ANTI-REDLINING REQUIREMENT.

24 Notwithstanding sections 6(a) and 7(a), the Secretary

25 may not make a contract for reinsurance coverage under
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1 this Act available for purchase unless the purchaser certifies

2 to the Secretary—

3 (1) in the case of a contract under section 6,

4 that—

5 (A) no insurer (or affiliate of such insurer)

6 participating in the State-operated program of

7 such purchaser has been adjudicated in any Fed8 eral court, or has entered, after the date of the

9 enactment of this Act, into a consent decree filed

10 in a Federal court or into a settlement agree11 ment, premised upon a violation of the Fair

12 Housing Act for the activities involved in mak13 ing insurance coverage available; and

14 (B) if such insurer (or affiliate) has entered

15 into any such consent decree or settlement agree16 ment, the insurer (or affiliate) is not in violation

17 of the decree or settlement agreement as deter18 mined by a court of competent jurisdiction or the

19 agency with which the decree or agreement was

20 entered into; and

21 (2) in the case of a contract under section 7,

22 that—

23 (A)(i) in the case of a contract purchased

24 by an insurer or reinsurer, the insurer or rein25 surer (or affiliate of such insurer or reinsurer)
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1 has not been adjudicated in any Federal court,

2 and has not entered, after the date of the enact3 ment of this Act, into a consent decree filed in

4 a Federal court or into a settlement agreement,

5 premised upon a violation of the Fair Housing

6 Act for the activities involved in making insur7 ance coverage available; or

8 (ii) in the case of a contract purchased by

9 a State program, no insurer (or affiliate of such

10 insurer) participating in the State program has

11 been adjudicated in any Federal court, or has

12 entered, after the date of the enactment of this

13 Act, into a consent decree filed in a Federal

14 court or into a settlement agreement, premised

15 upon a violation of the Fair Housing Act for the

16 activities involved in making insurance coverage

17 available; and

18 (B) if such an insurer or reinsurer (or affil19 iate of such an insurer or reinsurer) has entered

20 into any such consent decree or settlement agree21 ment, the insurer or reinsurer (or affiliate) is

22 not in violation of the decree or settlement agree23 ment as determined by a court of competent ju24 risdiction or the agency with which the decree or

25 agreement was entered into.
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1 SEC. 9. MINIMUM LEVEL OF RETAINED LOSSES AND MAX2 IMUM FEDERAL LIABILITY.

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

4 making reinsurance coverage available under this Act, the

5 Secretary shall make available for purchase contracts for

6 such coverage that require the sustainment of retained losses

7 from a single event of a covered peril (as required under

8 sections 6(b)(3) and 7(b)(3) for payment of eligible losses)

9 in various amounts, as the Secretary, in consultation with

10 the Commission, determines appropriate and subject to the

11 requirements under subsection (b).

12 (b) MINIMUM LEVEL OF RETAINED LOSSES.—

13 (1) CONTRACTS FOR STATE PROGRAMS.—Subject

14 to paragraphs (3) and (4) and notwithstanding any

15 other provision of this Act, a contract for reinsurance

16 coverage under section 6 for an eligible State program

17 that offers insurance or reinsurance coverage de18 scribed in subparagraph (A) or (B), respectively, of

19 section 6(a)(1) may not be made available or sold un20 less the contract requires retained losses from a single

21 event of a covered peril in the following amount:

22 (A) IN GENERAL.—The State program shall

23 sustain an amount of retained losses of not less

24 than the greater of—

25 (i) an amount between $2,000,000,000

26 and $5,000,000,000, that is determined by
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1 the Secretary in accordance with the re2 quirement under section 3(c)(1);

3 (ii) the claims-paying capacity of the

4 eligible State program, as determined by the

5 Secretary; and

6 (iii) an amount, determined by the

7 Secretary in consultation with the Commis8 sion, that is in the range between the

9 amount equal to the eligible loss projected to

10 be incurred once every 100 years from a

11 single event in the State and the amount

12 equal to the eligible loss projected to be in13 curred once every 250 years from such an

14 event.

15 (B) TRANSITION RULE FOR EXISTING PRO16 GRAMS.—

17 (i) CLAIMS-PAYING CAPACITY.—Subject

18 to clause (ii), in the case of any eligible

19 State program that was offering insurance

20 or reinsurance coverage on the date of the

21 enactment of this Act and the claims-paying

22 capacity of which is greater than the

23 amount determined under subparagraph

24 (A)(i) but less than an amount determined

25 for the State under subparagraph (A)(iii),
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1 the minimum level of retained losses appli2 cable under this paragraph shall be the

3 claims-paying capacity of such State pro4 gram.

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 providing a schedule for

9 increasing the claims-paying capacity of the

10 State program to the amount determined

11 for the State under subparagraph (A)(iii)

12 over a period not to exceed 5 years. The

13 Secretary may extend the 5-year period for

14 not more than 2 additional one-year periods

15 if the Secretary determines that losses in16 curred by the State program as a result of

17 covered perils create excessive hardship on

18 the State program. The Secretary shall con19 sult with the appropriate officials of the

20 State program regarding the required sched21 ule and any potential one-year extensions.

22 (C) TRANSITION RULE FOR NEW PRO23 GRAMS.—

24 (i) 100-YEAR EVENT.—The Secretary

25 may provide that, in the case of an eligible
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1 State program that, after January 1, 1999,

2 commences offering insurance or reinsur3 ance coverage, during the 5-year period be4 ginning on the date that reinsurance cov5 erage under section 6 is first made avail6 able, the minimum level of retained losses

7 applicable under this paragraph shall be the

8 amount determined for the State under sub9 paragraph (A)(iii), except that such min10 imum level shall be adjusted annually as

11 provided in clause (ii) of this subpara12 graph.

13 (ii) ANNUAL ADJUSTMENT.—Each an14 nual adjustment under this clause shall in15 crease the minimum level of retained losses

16 applicable under this subparagraph to an

17 eligible State program described in clause

18 (i) in a manner such that—

19 (I) during the course of such 5-

20 year period, the applicable minimum

21 level of retained losses approaches the

22 minimum level that, under subpara23 graph (A), will apply to the eligible

24 State program upon the expiration of

25 such period; and
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1 (II) each such annual increase is

2 a substantially similar amount, to the

3 extent practicable.

4 (D) REDUCTION BECAUSE OF REDUCED

5 CLAIMS-PAYING CAPACITY.—

6 (i) AUTHORITY.—Notwithstanding sub7 paragraphs (A), (B), and (C) or the terms

8 contained in a contract for reinsurance

9 pursuant to such subparagraphs, if the Sec10 retary determines that the claims-paying

11 capacity of an eligible State program has

12 been reduced because of payment for losses

13 due to an event, the Secretary may reduce

14 the minimum level of retained losses for the

15 State commensurate with the current capac16 ity of the State program, as determined by

17 the Secretary, but in no case may such min18 imum level be less than the amount deter19 mined under subparagraph (A)(i).

20 (ii) TERM OF REDUCTION.—If the min21 imum level of retained losses for an eligible

22 State program is reduced pursuant to

23 clause (i), upon the expiration of the 5-year

24 period beginning upon such reduction the

25 minimum level of retained losses applicable
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1 to such State program under a contract for

2 reinsurance coverage under section 6 shall

3 be increased to an amount not less than the

4 amount applicable to such State program

5 immediately before such reduction.

6 (E) CLAIMS-PAYING CAPACITY.—For pur7 poses of this paragraph, the claims-paying ca8 pacity of a State-operated insurance or reinsur9 ance program under section 6(a)(1) shall be de10 termined by the Secretary, in consultation with

11 the Commission, taking into consideration the

12 claims-paying capacity as determined by the

13 State program, retained losses to private insur14 ers in the State in an amount assigned by the

15 State insurance commissioner, the cash surplus

16 of the program, and the lines of credit, reinsur17 ance, and other financing mechanisms of the

18 program established by law.

19 (2) AUCTION CONTRACTS.—Subject to para20 graphs (3) and (4) and notwithstanding any other

21 provision of this Act, a contract for reinsurance cov22 erage may not be made available or sold under section

23 7 through a regional auction unless the contract re24 quires that the insurance industry in the region for

25 which the auction was conducted sustains a cumu-
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1 lative amount of retained losses (in covered lines re2 sulting from covered perils) of not less than the great3 er of—

4 (A) an amount between $2,000,000,000 and

5 $5,000,000,000, that is determined by the Sec6 retary in accordance with the requirement under

7 section 3(c)(1); and

8 (B) an amount, determined by the Sec9 retary in consultation with the Commission, that

10 is in the range between the amount equal to the

11 eligible loss projected to be incurred once every

12 100 years from a single event in the region and

13 the amount equal to the eligible loss projected to

14 be incurred once every 250 years from such an

15 event.

16 (3) INITIAL ADJUSTMENT BASED ON PRIVATE

17 MARKET.—The Secretary may, before making con18 tracts for reinsurance coverage under this Act ini19 tially available under section 6 or 7, raise the min20 imum level of retained losses from the amount re21 quired under paragraph (1) for an eligible State pro22 gram or under paragraph (2) for a region to ensure,

23 as determined by the Secretary, that such contracts

24 comply with the principle under section 3(c)(1).
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1 (4) ANNUAL ADJUSTMENT.—The Secretary may

2 annually raise the minimum level of retained losses

3 established under paragraph (1) for an eligible State

4 program or under paragraph (2) for a region to re5 flect, as determined by the Secretary—

6 (A) in the case of an eligible State program,

7 changes to the claims-paying capacity of the pro8 gram;

9 (B) changes in the capacity of the private

10 insurance and reinsurance market;

11 (C) increases in the market value of prop12 erties; or

13 (D) such other situations as the Secretary

14 considers appropriate.

15 The Secretary shall consider the minimum level of re16 tained losses requirements in paragraphs (1) and (2)

17 as minimum requirements only and shall have full

18 authority, effective on the date of the enactment of

19 this Act, to establish levels of required minimum re20 tained losses in any amount greater than the amounts

21 specified in such paragraphs. In making any deter22 mination under this paragraph in the minimum level

23 of retained losses, the Secretary shall establish such

24 level at an amount such that the program under this

25 Act for making reinsurance coverage available does
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1 not displace or compete with the private insurance

2 or reinsurance markets or capital markets, as deter3 mined by the Secretary after the Secretary has pro4 vided interested parties an opportunity to submit to

5 the Commission market information relevant to such

6 determination and has provided the Commission with

7 an opportunity to advise the Secretary regarding such

8 information and determination.

9 (5) OPTIONAL ANNUAL INFLATIONARY OR EXPO10 SURE ADJUSTMENT.—The Secretary may, on an an11 nual basis, raise the minimum level of retained losses

12 established under paragraph (1) for each eligible

13 State program and under paragraph (2) for each re14 gion to reflect the annual rate of inflation or growth

15 in exposures, whichever is greater. Any such raise

16 shall be made in accordance with an inflation index

17 or exposure index, as appropriate, that the Secretary

18 determines to be appropriate. The first such raise

19 may be made one year after contracts for reinsurance

20 coverage under this Act are first made available for

21 purchase.

22 (c) MAXIMUM FEDERAL LIABILITY.—

23 (1) IN GENERAL.—Notwithstanding any other

24 provision of law, the Secretary may sell only con25 tracts for reinsurance coverage under this Act in var-
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1 ious amounts which comply with the following re2 quirements:

3 (A) ESTIMATE OF AGGREGATE LIABILITY.—

4 The aggregate liability for payment of claims

5 under all such contracts in any single year is

6 unlikely to exceed $25,000,000,000 (as such

7 amount is adjusted under paragraph (2)).

8 (B) ELIGIBLE LOSS COVERAGE SOLD.—Eli9 gible losses covered by all contracts sold within

10 a State or region during a 12-month period do

11 not exceed the difference between the following

12 amounts (each of which shall be determined by

13 the Secretary in consultation with the Commis14 sion):

15 (i) The amount equal to the eligible

16 loss projected to be incurred once every 500

17 years from a single event in the State or re18 gion.

19 (ii) The amount equal to the eligible

20 loss projected to be incurred once every 100

21 years from a single event in the State or re22 gion.

23 (2) ANNUAL ADJUSTMENTS.—The Secretary shall

24 annually adjust the amount under paragraph (1)(A)

25 (as it may have been previously adjusted) to provide
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1 for inflation in accordance with an inflation index

2 that the Secretary determines to be appropriate.

3 (d) LIMITATION ON PERCENTAGE OF RISK IN EXCESS

4 OF RETAINED LOSSES.—

5 (1) IN GENERAL.—The Secretary may not make

6 available for purchase contracts for reinsurance cov7 erage under this Act that would pay out more than

8 50 percent of eligible losses in excess of retained

9 losses—

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

11 6 for an eligible State program, for such State;

12 and

13 (B) in the case of a contract made available

14 through a regional auction under section 7, for

15 such region.

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

17 the amount of payout from a reinsurance contract

18 shall be the amount of eligible losses in excess of re19 tained losses multiplied by the percentage under para20 graph (1).

21 SEC. 10. DISASTER REINSURANCE FUND.

22 (a) ESTABLISHMENT.—There is established within the

23 Treasury of the United States a fund to be known as the

24 Disaster Reinsurance Fund (in this section referred to as

25 the ‘‘Fund’’).
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1 (b) CREDITS.—The Fund shall be credited with—

2 (1) amounts received annually from the sale of

3 contracts for reinsurance coverage under this Act;

4 (2) any amounts borrowed under subsection (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 the

8 Fund.

9 (c) USES.—Amounts in the Fund shall be available

10 to the Secretary only for the following purposes:

11 (1) CONTRACT PAYMENTS.—For payments to

12 covered purchasers under contracts for reinsurance

13 coverage for eligible losses under such contracts.

14 (2) COMMISSION COSTS.—To pay for the oper15 ating costs of the Commission.

16 (3) ADMINISTRATIVE EXPENSES.—To pay for the

17 administrative expenses incurred by the Secretary in

18 carrying out the reinsurance program under this Act.

19 (4) TERMINATION.—Upon termination under

20 section 14, as provided in such section.

21 (d) BORROWING.—

22 (1) AUTHORITY.—To the extent that the amounts

23 in the Fund are insufficient to pay claims and ex24 penses under subsection (c), the Secretary may issue

25 such obligations of the Fund as may be necessary to
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1 cover the insufficiency and shall purchase any such

2 obligations issued.

3 (2) PUBLIC DEBT TRANSACTION.—For the pur4 pose of purchasing any such obligations, the Secretary

5 may use as a public debt transaction the proceeds

6 from the sale of any securities issued under chapter

7 31 of title 31, United States Code, and the purposes

8 for which securities are issued under such chapter are

9 hereby extended to include any purchase by the Sec10 retary of such obligations under this subsection.

11 (3) CHARACTERISTICS OF OBLIGATIONS.—Obli12 gations issued under this subsection shall be in such

13 forms and denominations, bear such maturities, bear

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

15 terms and conditions, as the Secretary shall deter16 mine.

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

18 and sales by the Secretary of obligations under this

19 subsection shall be treated as public debt transactions

20 of the United States.

21 (5) REPAYMENT.—Any obligations issued under

22 this subsection shall be repaid, including interest,

23 from the Fund and shall be recouped from premiums

24 charged for reinsurance coverage provided under this

25 Act.
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1 (e) INVESTMENT.—If the Secretary determines that the

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

3 Secretary may invest such amounts as the Secretary con4 siders advisable in obligations issued or guaranteed by the

5 United States.

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

7 amounts made available pursuant to subsection (d) and sec8 tion 11(h), no Federal funds shall be authorized or appro9 priated for the Fund or for carrying out the reinsurance

10 program under this Act.

11 SEC. 11. NATIONAL COMMISSION ON CATASTROPHE RISKS

12 AND INSURANCE LOSS COSTS.

13 (a) ESTABLISHMENT.—The Secretary shall establish a

14 commission to be known as the National Commission on

15 Catastrophe Risks and Insurance Loss Costs.

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

17 purpose of advising the Secretary regarding the estimated

18 loss costs associated with the contracts for reinsurance cov19 erage available under this Act and carrying out the func20 tions specified in this Act.

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

22 more than 5 members, who shall be appointed by the Sec23 retary and shall be broadly representative of the public in24 terest. Members shall have no personal, professional, or fi25 nancial interest at stake in the deliberations of the Commis-
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1 sion. The membership of the Commission shall at all times

2 include at least 1 representative of a nationally recognized

3 consumer organization.

4 (d) TREATMENT OF NON-FEDERAL MEMBERS.—Each

5 member of the Commission who is not otherwise employed

6 by the Federal Government shall be considered a special

7 Government employee for purposes of sections 202 and 208

8 of title 18, United States Code.

9 (e) EXPERTS AND CONSULTANTS.—The Commission

10 may procure temporary and intermittent services under

11 section 3109(b) of title 5, United States Code, but at a rate

12 not in excess of the daily equivalent of the annual rate of

13 basic pay payable for level V of the Executive Schedule, for

14 each day during which the individual procured is per15 forming such services for the Commission.

16 (f) COMPENSATION.—Each member of the Commission

17 who is not an officer or employee of the Federal Government

18 shall be compensated at a rate of basic pay payable for level

19 V of the Executive Schedule, for each day (including travel

20 time) during which such member is engaged in the perform21 ance of the duties of the Commission. All members of the

22 Commission who are officers or employees of the United

23 States shall serve without compensation in addition to that

24 received for their services as officers or employees of the

25 United States.
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1 (g) OBTAINING DATA.—The Commission and the Sec2 retary may solicit loss exposure data and such other infor3 mation either deems necessary to carry out its responsibil4 ities from governmental agencies and bodies and organiza5 tions that act as statistical agents for the insurance indus6 try. The Commission and the Secretary shall take such ac7 tions as are necessary to ensure that information that either

8 deems is confidential or proprietary is disclosed only to au9 thorized individuals working for the Commission or the Sec10 retary. No company which refuses to provide information

11 requested by the Commission or the Secretary may partici12 pate in the program for reinsurance coverage authorized

13 under this Act, nor may any State insurance or reinsurance

14 program participate if any governmental agency within

15 that State has refused to provide information requested by

16 the Commission or the Secretary.

17 (h) FUNDING.—

18 (1) AUTHORIZATION OF APPROPRIATIONS.—

19 There are authorized to be appropriated—

20 (A) $1,000,000 for fiscal year 2000 for the

21 initial expenses in establishing the Commission

22 and the initial activities of the Commission that

23 cannot timely be covered by amounts obtained

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

25 7(a)(3)(C), as determined by the Secretary;
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1 (B) such additional sums as may be nec2 essary to carry out subsequent activities of the

3 Commission;

4 (C) $1,000,000 for fiscal year 2000 for the

5 initial expenses of the Secretary in carrying out

6 the program authorized under section 3; and

7 (D) such additional sums as may be nec8 essary to carry out subsequent activities of the

9 Secretary under this Act.

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

11 maximum extent practicable, that an amount equal to

12 any amount appropriated under paragraph (1) is ob13 tained from purchasers of reinsurance coverage under

14 this Act and deposited in the Fund established under

15 section 10. Such amounts shall be obtained by inclu16 sion of a provision for the Secretary’s and the Com17 mission’s expenses incorporated into the pricing of the

18 contracts for such reinsurance coverage, pursuant to

19 sections 6(b)(6)(B)(iii) and 7(a)(3)(C).

20 (i) TERMINATION.—The Commission shall terminate

21 upon the effective date of the repeal under section 14(c).

22 SEC. 12. DEFINITIONS.

23 For purposes of this Act, the following definitions shall

24 apply:
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1 (1) COMMISSION.—The term ‘‘Commission’’

2 means the National Commission on Catastrophe Risks

3 and Insurance Loss Costs established under section

4 11.

5 (2) COVERED PERILS.—The term ‘‘covered per6 ils’’ means the natural disaster perils under section 5.

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

8 purchaser’’ means—

9 (A) with respect to reinsurance coverage

10 made available under a contract under section 6,

11 the eligible State-operated insurance or reinsur12 ance program that purchases such coverage; and

13 (B) with respect to reinsurance coverage

14 made available under a contract under section 7,

15 the purchaser of the contract auctioned under

16 such section or any subsequent holder or holders

17 of the contract.

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

19 means a geographical area, with respect to which—

20 (A) a covered peril specified in section 5 has

21 occurred; and

22 (B) a declaration that a major disaster ex23 ists, as a result of the occurrence of such peril—

24 (i) has been made by the President of

25 the United States; and
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1 (ii) is in effect.

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

3 losses’’ means losses in excess of the sustained and re4 tained losses, as defined by the Secretary after con5 sultation with the Commission.

6 (6) ELIGIBLE STATE PROGRAM.—The term ‘‘eli7 gible State program’’ means a State program that,

8 pursuant to section 6(a), is eligible to purchase rein9 surance coverage made available through contracts

10 under section 6.

11 (7) PRICE GOUGING.—The term ‘‘price gouging’’

12 means the providing of any consumer good or service

13 by a supplier for a price that the supplier knows or

14 has reason to know is greater, by at least the percent15 age set forth in a State law or regulation prohibiting

16 such act (notwithstanding any real cost increase due

17 to any attendant business risk and other reasonable

18 expenses that result from the major disaster involved),

19 than the price charged by the supplier for such con20 sumer good or service immediately before the disaster.

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

22 lines’’ means lines of insurance coverage for which

23 losses are covered under section 4 by reinsurance cov24 erage under this Act.
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1 (9) REINSURANCE COVERAGE.—The term ‘‘rein2 surance coverage under this Act’’ includes coverage

3 under contracts made available under sections 6 and

4 7.

5 (10) SECRETARY.—The term ‘‘Secretary’’ means

6 the Secretary of the Treasury.

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

8 of the United States, the District of Columbia, the

9 Commonwealth of Puerto Rico, the Commonwealth of

10 the Northern Mariana Islands, Guam, the Virgin Is11 lands, American Samoa, and any other territory or

12 possession of the United States.

13 SEC. 13. REGULATIONS.

14 The Secretary shall issue any regulations necessary to

15 carry out the program for reinsurance coverage under this

16 Act.

17 SEC. 14. TERMINATION.

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

19 (b), the Secretary may not provide any reinsurance cov20 erage under this Act covering any period after the expira21 tion of the 10-year period beginning on the date of the en22 actment of this Act.

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

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

25 Commission, determines that continuation of the program
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1 for reinsurance coverage under this Act is necessary to

2 carry out the purpose of this Act under section 3(b) because

3 of insufficient growth of capacity in the private home4 owners’ insurance market, the Secretary shall continue to

5 provide reinsurance coverage under this Act until the expi6 ration of the 5-year period beginning upon the expiration

7 of the period under subsection (a).

8 (c) REPEAL.—Effective upon the date that reinsurance

9 coverage under this Act is no longer available or in force

10 pursuant to subsection (a) or (b), this Act (except for this

11 section) is repealed.

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

13 into the General Fund of the Treasury any amounts re14 maining in the Fund under section 10 upon the repeal of

15 this Act.

16 SEC. 15. ANNUAL STUDY OF COST AND AVAILABILITY OF

17 DISASTER INSURANCE AND PROGRAM NEED.

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

19 basis, conduct a study and submit to the Congress a report

20 on the cost and availability of homeowners’ insurance for

21 losses resulting from catastrophic natural disasters covered

22 by the reinsurance program under this Act.

23 (b) CONTENTS.—Each annual study under this section

24 shall determine and identify, on an aggregate basis—
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1 (1) for each State or region, the capacity of the

2 private homeowners’ insurance market with respect to

3 coverage for losses from catastrophic natural disasters;

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

5 homeowners who have such coverage, the disasters cov6 ered, and the average cost of such coverage;

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

8 private reinsurers and capital markets have made in

9 providing reinsurance for such homeowners’ insur10 ance;

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

12 Federal reinsurance program under this Act on the

13 availability and affordability of such insurance; and

14 (5) the appropriate time for termination of the

15 Federal reinsurance program under this Act.

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

17 shall be submitted not later than March 30 of the year after

18 the year for which the study was conducted.

19 (d) COMMENCEMENT OF REPORTING REQUIREMENT.—

20 The Secretary shall first submit an annual report under

21 this section 2 years after the date of the enactment of this

22 Act.

23 SEC. 16. GAO STUDY OF HURRICANE RELATED FLOODING.

24 (a) IN GENERAL.—The Comptroller General of the

25 United States shall conduct a study of the availability and
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1 adequacy of flood insurance coverage for losses to residences

2 and other properties caused by hurricane-related flooding.

3 (b) CONTENTS.—The study under this section shall de4 termine and analyze—

5 (1) the frequency and severity of hurricane-re6 lated flooding during the last 20 years in comparison

7 with flooding that is not hurricane-related;

8 (2) the differences between the risks of flood-re9 lated losses to properties located within the 100-year

10 floodplain and those located outside of such flood11 plain;

12 (3) the extent to which insurance coverage re13 ferred to in subsection (a) is available for properties

14 not located within the 100-year floodplain;

15 (4) the advantages and disadvantages of making

16 such coverage for such properties available under the

17 national flood insurance program;

18 (5) appropriate methods for establishing pre19 miums for insurance coverage under such program for

20 such properties that, based on accepted actuarial and

21 rate making principles, cover the full costs of pro22 viding such coverage;

23 (6) appropriate eligibility criteria for making

24 flood insurance coverage under such program avail25 able for properties that are not located within the
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1 100-year floodplain or within a community partici2 pating in the national flood insurance program;

3 (7) the appropriateness of the existing

4 deductibles for all properties eligible for insurance

5 coverage under the national flood insurance program,

6 including the standard and variable deductibles for

7 pre-FIRM and post-FIRM properties, and whether a

8 broader range of deductibles should be established;

9 (8) income levels of policyholders of insurance

10 made available under the national flood insurance

11 program whose properties are pre-FIRM subsidized

12 properties; and

13 (9) the number of homes that are not primary

14 residences that are insured under the national flood

15 insurance program and are pre-FIRM subsidized

16 properties.

17 (c) CONSULTATION WITH FEMA.—In conducting the

18 study under this section, the Comptroller General shall con19 sult with the Director of the Federal Emergency Manage20 ment Agency.

21 (d) REPORT.—The Comptroller General shall complete

22 the study under this section and submit a report to the Con23 gress regarding the findings of the study, not later than 5

24 months after the date of the enactment of this Act.