I 

112TH CONGRESS 

1ST SESSION H. R. 3125 

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

behalf of State catastrophe insurance programs to assist in the financial 

recovery from earthquakes, earthquake-induced landslides, volcanic eruptions, and tsunamis. 

IN THE HOUSE OF REPRESENTATIVES 

OCTOBER 6, 2011 

Mr. CAMPBELL (for himself, Mr. LEWIS of California, and Mr. CALVERT) introduced the following bill; which was referred to the Committee on Financial Services 

A BILL 

To establish a program to provide guarantees for debt issued 

by or on behalf of State catastrophe insurance programs 

to assist in the financial recovery from earthquakes, 

earthquake-induced landslides, volcanic eruptions, and 

tsunamis. 

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

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

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

5 ‘‘Earthquake Insurance Affordability Act’’. 

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

7 this Act is as follows: 


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Sec. 1. Short title; table of contents. 

Sec. 2. Findings and purposes. 

Sec. 3. Definitions. 

Sec. 4. Eligible State programs. 

Sec. 5. Establishment of debt-guarantee program. 

Sec. 6. Effect of guarantee. 

Sec. 7. Assessment at time of guarantee. 

Sec. 8. Payment of losses. 

Sec. 9. Full faith and credit. 

Sec. 10. Budgetary impact; costs. 

Sec. 11. Regulations. 

1 SEC. 2. FINDINGS AND PURPOSES. 

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

3 (1) Major earthquakes are likely in the United 

4 States. For example, the United States Geological 

5 Survey predicts that there is a 99.7 percent chance 

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

8 percent chance that a magnitude 7.5 earthquake will 

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

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

12 landslides, volcanic eruptions, and tsunamis. 

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

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

17 the event of a catastrophic earthquake, the lack of 

18 homeowner earthquake-insurance coverage will slow 

19 recovery, create economic hardship, and increase the 


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1 risk of mortgage and other credit defaults and ad2 versely affect the Nation’s banking system. 

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

8 insurance to homeowners through private-sector in9 surers. 

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

12 catastrophes such as earthquakes and to facilitate 

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

15 recovery. 

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

18 (1) to promote the availability of private capital 

19 to provide liquidity and capacity to State earthquake 

20 insurance programs; and 

21 (2) to expedite the payment of claims under 

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

25 to guarantee debt for such purposes. 


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1 SEC. 3. DEFINITIONS. 

2 In this Act, the following definitions shall apply: 

3 (1) COMMITMENT TO GUARANTEE.—The term 

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

5 make debt guarantees to an eligible State program 

6 pursuant to section 5. 

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

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

10 guarantee under this Act. 

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

12 means any loss resulting from an earthquake, an 

13 earthquake-related event, or fire following an earth14 quake that is determined by an eligible State pro15 gram as being covered by insurance made available 

16 under that eligible State program. 

17 (4) QUALIFYING ASSETS.—The term ‘‘quali18 fying assets’’ means the policyholder surplus of the 

19 eligible State program as stated in the most recent 

20 quarterly financial statement filed by the program 

21 with the domiciliary regulator of the program in the 

22 last quarter ending prior to an insured-loss trig23 gering event or events. 

24 (5) RESIDENTIAL PROPERTY INSURANCE.—The 

25 term ‘‘residential property insurance’’ means insur26 ance coverage for— 


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

4 owned mobile homes, and their contents, located 

5 in a State and used exclusively for residential 

6 purposes or a tenant’s policy written to include 

7 personal contents of a residential unit located in 

8 the State, but shall not include— 

9 (i) insurance for real property or its 

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

13 rented for individual residential purposes; 

14 or 

15 (ii) a policy that does not include any 

16 of the perils insured against in a standard 

17 fire policy or any earthquake policy; or 

18 (B) commercial residential property, which 

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

21 cooperative association, or an apartment build22 ing. 

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

24 the Secretary of the Treasury. 


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

2 the several States of the United States, the District 

3 of Columbia, the Commonwealth of Puerto Rico, the 

4 Commonwealth of the Northern Mariana Islands, 

5 Guam, the United States Virgin Islands, American 

6 Samoa, and any other territory or possession of the 

7 United States. 

8 SEC. 4. ELIGIBLE STATE PROGRAMS. 

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

10 shall be considered an eligible State program for purposes 

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

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

15 with the following requirements: 

16 (1) STATE PROGRAM DESIGN.—The State pro17 gram is established and authorized by State law as 

18 an earthquake insurance program that offers resi19 dential property insurance coverage for insured 

20 losses to property, contents, and additional living ex21 penses, and which is not a State program that re22 quires insurers to pool resources to provide property 

23 insurance coverage for earthquakes. 

24 (2) OPERATION.—The State program shall 

25 meet the following requirements: 


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1 (A) A majority of the members of the gov2 erning body of the State program shall be pub3 lic officials or appointed by public officials. 

4 (B) The State shall have a financial inter5 est in the State program. 

6 (C) If the State has at any time appro7 priated amounts from the State program’s 

8 funds for any purpose other than payments for 

9 losses insured under the State program, or pay10 ments made in connection with any of the State 

11 program’s authorized activities, the State shall 

12 have returned such amounts to the State fund, 

13 together with interest on such amounts. 

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

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

16 designee) a written determination, within the mean17 ing of section 6110(b) of the Internal Revenue Code 

18 of 1986, that the State program either— 

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

20 State that has created it; or 

21 (B) is otherwise exempt from Federal in22 come taxation. 

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

24 provide for any distribution of any part of any net 


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1 profits of the State program to any insurer that par2 ticipates in the State program. 

3 (5) LOSS PREVENTION AND MITIGATION.— 

4 (A) MITIGATION OF LOSSES.—The State 

5 program shall include provisions designed to en6 courage and support programs to mitigate 

7 losses for which the State insurance program 

8 was established to provide insurance. 

9 (B) OPERATIONAL REQUIREMENTS.—The 

10 State program shall operate in a State that— 

11 (i) has in effect and enforces, or the 

12 appropriate local governments within the 

13 State have in effect and enforce, nationally 

14 recognized building, seismic-design, and 

15 safety codes and consensus-based stand16 ards; and 

17 (ii) has taken actions to establish an 

18 insurance rate structure that takes into ac19 count measures to mitigate insured losses. 

20 (6) REQUIREMENTS REGARDING COVERAGE.— 

21 The State program— 

22 (A) may not, except for charges or assess23 ments related to post-event financing or bond24 ing, involve cross-subsidization between any 

25 separate property-and-casualty insurance lines 


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1 offered under the State program pursuant to 

2 paragraph (1); 

3 (B) shall be subject to a requirement 

4 under State law that for earthquake insurance 

5 coverage made available under the State insur6 ance program the premium rates charged on 

7 such insurance shall be actuarially sound; and 

8 (C) shall make available to all qualifying 

9 policyholders insurance coverage and mitigation 

10 services on a basis that is not unfairly discrimi11 natory. 

12 (b) ANNUAL CERTIFICATION.—The Secretary shall 

13 establish procedures for initial certification and annual re14 certification as an eligible State program. 

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

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

17 authorized and shall have the powers and authorities nec18 essary— 

19 (1) to guarantee, and to enter into commit20 ments to guarantee, holders of debt against loss of 

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

22 eligible State programs for purposes of this Act; and 

23 (2) to certify and recertify State catastrophe in24 surance programs that cover earthquake peril to beVerDate Mar 15 2010 02:37 Oct 08, 2011 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H3125.IH H3125

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1 come or remain eligible for the benefits of such a 

2 debt-guarantee program. 

3 (b) LIMIT ON OUTSTANDING DEBT GUARANTEE.— 

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

5 guarantees and commitments to guarantee for all eligible 

6 State programs outstanding at any time shall not exceed 

7 $5,000,000,000, including interest. 

8 (c) FUNDING.— 

9 (1) APPROPRIATION OF FEDERAL PAYMENTS.— 

10 Subject to subsection (b), there are hereby appro11 priated, out of funds in the Treasury not otherwise 

12 appropriated, such sums as may be necessary to sat13 isfy debt guarantee commitments extended to eligible 

14 State programs under this Act. 

15 (2) CERTIFICATION FEE.—Upon certification or 

16 recertification as an eligible State program under 

17 section 4(a) or 4(b), a State program shall be 

18 charged a certification fee sufficient in the judge19 ment of the Secretary at the time of certification to 

20 cover— 

21 (A) applicable administrative costs arising 

22 from each certification or recertification, includ23 ing all pre-certification costs and a proportional 

24 share of the costs arising from the administra25 tion of the program established under this Act, 


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

2 percent annum of the aggregate principal 

3 amount of the debt for which the eligible State 

4 program is issued a guarantee commitment; 

5 and 

6 (B) any probable losses on the aggregate 

7 principal amount of the debt for which the eligi8 ble State program is issued a guarantee com9 mitment. 

10 (3) RULE OF CONSTRUCTION.—Any funds ex11 pended or obligated by the Secretary for the pay12 ment of administrative expenses for conduct of the 

13 debt-guarantee program authorized by this Act shall 

14 be deemed appropriated at the time of such expendi15 ture or obligation from the certification and recer16 tification fees collected pursuant to paragraph (2). 

17 (d) CONDITIONS FOR GUARANTEE ELIGIBILITY.—A 

18 debt guarantee under this section may be made only if 

19 the Secretary has issued a commitment to guarantee to 

20 a certified, eligible State program. The commitment to 

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

22 its initial issuance and may be extended by the Secretary 

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

24 the commitment to guarantee. The commitment to guar25 antee and each extension of such commitment may be 


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1 issued by the Secretary only if the following requirements 

2 are satisfied: 

3 (1) The eligible State program submits to the 

4 Secretary a report setting forth, in such form and 

5 including such information as the Secretary shall re6 quire, how the eligible State program plans to repay 

7 guarantee-eligible debt it may incur. 

8 (2) Based on the eligible State program’s report 

9 submitted pursuant to paragraph (1), the Secretary 

10 determines there is reasonable assurance that the el11 igible State program can meet its repayment obliga12 tion under such debt. 

13 (3) The eligible State program enters into an 

14 agreement with the Secretary, as the Secretary shall 

15 require, that the eligible State program will not use 

16 Federal funds of any kind or from any Federal 

17 source (including any disaster or other financial as18 sistance, loan proceeds, and any other assistance or 

19 subsidy) to repay the debt. 

20 (4) The commitment to guarantee shall specify 

21 and require the payment of the fees for debt guar22 antee coverage. 

23 (5) The maximum term of the debt specified in 

24 a commitment issued under this section may not ex25 ceed 30 years. 


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1 (e) MANDATORY ASSISTANCE FOR ELIGIBLE STATE

2 PROGRAMS.—The Secretary shall upon the request of an 

3 eligible State program and pursuant to a commitment to 

4 guarantee issued under subsection (d), provide a guar5 antee under subsection (f) for such eligible State program 

6 in the amount requested by such eligible State program, 

7 subject to the limitation under subsection (f)(2). 

8 (f) CATASTROPHE DEBT GUARANTEE.—A debt guar9 antee under this subsection for an eligible State program 

10 shall be subject to the following requirements: 

11 (1) PRECONDITIONS.—The eligible State pro12 gram shows to the satisfaction of the Secretary that 

13 insured losses to the eligible State program arising 

14 from the event or events covered by the commitment 

15 to guarantee are likely to exceed 80 percent of the 

16 eligible State program’s qualifying assets available to 

17 pay claims, as calculated on the date of the event 

18 and based on the eligible State program’s most re19 cent quarterly financial statement filed with its 

20 domiciliary regulator. 

21 (2) USE OF FUNDS.—Proceeds of debt guaran22 teed under this section shall be used only to pay the 

23 costs of issuing debt and of securing or providing 

24 claim-payment capacity for paying the insured losses 

25 and loss adjustment expenses incurred by an eligible 


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1 State program. Such amounts shall not be used for 

2 any other purpose. 

3 SEC. 6. EFFECT OF GUARANTEE. 

4 The issuance of any guarantee by the Secretary 

5 under this Act shall be conclusive evidence that— 

6 (1) the guarantee has been properly obtained; 

7 (2) the underlying debt qualified for such guar8 antee; and 

9 (3) the guarantee is valid, legal, and enforce10 able. 

11 SEC. 7. ASSESSMENT AT TIME OF GUARANTEE. 

12 To extent not satisfied by the fees collected under sec13 tion 5(c)(2), the Secretary shall charge and collect fees 

14 for each guarantee issued in amounts sufficient in the 

15 judgement of the Secretary at the time of issuance of the 

16 guarantee to cover applicable administrative costs and 

17 probable losses on the guaranteed obligations. 

18 SEC. 8. PAYMENT OF LOSSES. 

19 (a) IN GENERAL.—The Secretary agrees to pay to 

20 the duly appointed paying agent or trustee (in this section 

21 referred to as the ‘‘Fiscal Agent’’) for the eligible State 

22 program that portion of the principal and interest on any 

23 debt guaranteed under this Act that shall become due to 

24 payment but shall be unpaid by the eligible State program 

25 as a result of such program having provided insufficient 


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1 funds to the Fiscal Agent to make such payments. The 

2 Secretary shall make such payments on the date such 

3 principal or interest becomes due for payment or on the 

4 business day next following the day on which the Secretary 

5 shall receive notice of failure on the part of the eligible 

6 State program to provide sufficient funds to the Fiscal 

7 Agent to make such payments, whichever is later. Upon 

8 making such payment, the Secretary shall be subrogated 

9 to all the rights of the ultimate recipient of the payment. 

10 The Secretary shall be entitled to recover from the eligible 

11 State program the amount of any payments made pursu12 ant to any guarantee entered into under this Act. 

13 (b) ROLE OF THE ATTORNEY GENERAL.—The Attor14 ney General shall take such action as may be appropriate 

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

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

17 issuance of any guarantee under this Act. 

18 (c) RULE OF CONSTRUCTION.—Nothing in this sec19 tion shall be construed to preclude any forbearance for the 

20 benefit of the eligible State program which may be agreed 

21 upon by the parties to the guaranteed debt and approved 

22 by the Secretary, provided that budget authority for any 

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

24 Credit Reform Act of 1990, is available. 


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1 (d) RIGHT OF THE SECRETARY.—Notwithstanding 

2 any other provision of law relating to the acquisition, han3 dling, or disposal of property by the United States, the 

4 Secretary shall have the right in the discretion of the Sec5 retary to complete, recondition, reconstruct, renovate, re6 pair, maintain, operate, or sell any property acquired by 

7 the Secretary pursuant to the provisions of this Act. 

8 SEC. 9. FULL FAITH AND CREDIT. 

9 The full faith and credit of the United States is 

10 pledged to the payment of all guarantees issued under this 

11 Act with respect to principal and interest. 

12 SEC. 10. BUDGETARY IMPACT; COSTS. 

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

14 Reform Act of 1990, the cost of guarantees to be issued 

15 under this Act shall be calculated by adjusting the dis16 count rate in section 502(5)(E) of such Act for market 

17 risk. 

18 SEC. 11. REGULATIONS. 

19 The Secretary shall issue any regulations necessary 

20 to carry out the debt-guarantee program established under 

21 this Act. 

Æ 


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