(4) PRICE GOUGING PROTECTIONS.—The auc-
tion program may provide reinsurance coverage for
losses incurred only for property located in a State
for which the State entity authorized to make such
determinations has certified to the Secretary that
there are in effect, in such State, laws or regulations
sufficient to prohibit price gouging, during the term
of such reinsurance coverage, in any disaster area
located within the State.
(5) MITIGATION REQUIREMENTS.—
(A) IN GENERAL.—The auction program
shall require each purchaser of a contract, as a
condition of such purchase, to contribute an
amount, that the Secretary (in consultation
with the Director of the Federal Emergency
Management Agency) shall establish and which
shall not exceed 5 percent of the price paid for
the contract, to communities that—
(i) are located in the State in which
the reinsurance coverage under the con-
tract is provided (or in the case of multiple
States, among such States, as determined
by the Secretary);
(ii) are designated by the Director of
the 
Federal 
Emergency 
Management
Agency and the appropriate emergency
management agency for the State as
Project Impact communities (for purposes
of the pre-disaster mitigation program of
such Agency); and
(iii) are participating in such pro-
grams or initiatives as the Secretary may
require that provide incentives for con-
struction of structures and communities
that are resistant to damage from covered
perils, which shall include the Building
Code Effectiveness Grading Schedule of
the Insurance Services Office.
(B) USE
OF
CONTRIBUTIONS.—Amounts
contributed to communities pursuant to the re-
quirement under subparagraph (A) shall be
used only—
(i) for activities to reduce losses from
covered perils to properties covered under
the reinsurance contract purchased under
the auction program that are located in
such communities; and
(ii) in accordance with such require-
ments as the Secretary, in consultation
with the Director of the Federal Emer-
gency Management Agency and appro-
priate State agencies, shall establish to en-
sure cost-effective use of such amounts.
(C) ALLOCATION.—The Secretary, in con-
sultation with the Director of the Federal
Emergency Management Agency, shall establish
requirements for allocation of contributions
among communities eligible under subpara-
graph (A) to receive such contributions.
(6) OTHER
REQUIREMENTS.—The Secretary
may establish such other requirements for the auc-
tion program as the Secretary considers necessary to
carry out this Act.
(b) CONTRACT TERMS AND CONDITIONS.—Each con-
tract for reinsurance coverage under this Act shall include
the following terms and conditions:
(1) MATURITY.—The term of each such con-
tract shall not exceed 1 year or such other term as
the Secretary may determine.
(2) TRANSFERABILITY.—The contract shall at
all times be fully transferable, assignable, and divis-
ible.
(3) THRESHOLD OF COVERAGE.—The contract
shall provide that the covered purchaser may receive
a payment for losses covered under the contract if,
under a process specified in the contract, the Sec-
retary determines that the insurance industry will,
as a result of a single event of a covered peril, incur
losses within the coverage area for the region estab-
lished under subsection (a)(2) for which the contract
was auctioned that are covered by one or more lines
of insurance under section 4 in an aggregate
amount, for such event, greater than the level of re-
tained losses specified in section 6.
(4) MULTIPLE
EVENTS.—The contract shall
cover any eligible losses from one or more covered
events that may occur during the term of the con-
tract and shall provide that if multiple events occur,
the retained losses requirement under paragraph (3)
shall apply to each event.
(5) ADDITIONAL CONTRACT OPTION.—The con-
tract shall provide that the purchaser of the contract
may, during the term of such original contract, pur-
chase additional contracts from among those offered
by the Secretary at the beginning of the term, sub-
ject to the limitations under section 6, at the prices
at which such contracts were offered at the begin-
ning of the term, prorated based upon the remaining
term as determined by the Secretary. Such addi-
tional contracts shall provide coverage beginning on
a date 15 days after the date of purchase but shall
not provide coverage for losses for an event that has
already occurred.
(6) SUBMISSION OF INFORMATION.—The con-
tract shall include terms that—
(A) require the purchaser to notify the
Secretary of any sale, transfer, assignment, or
division of the contract or any interest in the
contract, identify the interest involved, and
identify the price paid or compensation pro-
vided; and
(B) authorize the disclosures required
under subsection (c)(2).
(7) OTHER TERMS.—The contract shall contain
such other terms as the Secretary considers nec-
essary to carry out this Act and to ensure the long-
term financial integrity of the program under this
Act.
(c) GAO AUDIT.—
(1) IN
GENERAL.—For each fiscal year, the
Comptroller General of the United States shall con-
duct an audit of prices for contracts made available
under the auction program under this section during
such fiscal year that determines—
(A) the reserve prices established for such
contracts;
(B) the prices paid for such contracts that
are purchased;
(C) the prices paid, or compensation pro-
vided, in any sales, transfers, assignments, or
divisions of any such contracts (or any interests
in such contracts) in the secondary market or
to any third party; and
(D) pursuant to the information obtained
under subparagraphs (A) through (C), the ap-
propriate reserve prices for such contracts that
are to be made available in the succeeding fiscal
year.
(2) USE
OF
INFORMATION.—The Secretary
shall provide any information referred to in sub-
section (b)(6) that is obtained by the Secretary to
the Comptroller General, the Director of the Con-
gressional Budget Office, and the Director of the Of-
fice of Management and Budget, and shall make
such information publicly available. The Secretary,
the Director of the Congressional Budget Office, the
Director of the Office of Management and Budget
shall each take such information into consideration
in preparing any budget, report, estimate, or rec-
ommendation to the extent it relates to the auction
program under this section, and in any determina-
tions relating to the Budget of the United States or
the concurrent resolution on the budget (as such
term is defined in section 3 of the Congressional
Budget Act of 1974). The Secretary shall take such
information into consideration in establishing reserve
prices for contracts made available under this sec-
tion.
(d) PRIVATE SECTOR RIGHT TO PARTICIPATE.—
(1) ESTABLISHMENT OF COMPETITIVE PROCE-
DURE.—The Secretary shall establish, by regulation,
a competitive procedure under this subsection that
provides qualified entities an opportunity, on a basis
consistent with the regional auction procedure and
contract cycle established under this section by the
Secretary, to offer to provide, in lieu of reinsurance
coverage under this Act made available by the Sec-
retary, reinsurance coverage that is substantially
similar to such coverage.
(2) COMPETITIVE
PROCEDURE.—Under the
procedure established under this subsection—
(A) the Secretary shall establish criteria
for private insurers, reinsurers, and capital
market companies, and consortia of such enti-
during the period referred to in subparagraph
(C) a period of not less than 20 days (which
shall terminate before the commencement of the
auction) to submit to the Secretary an offer to
provide, in lieu of the reinsurance coverage
under this Act otherwise to be made available
under an auction under this section, coverage
that is substantially similar to such coverage;
(E) if the Secretary determines that an
offer submitted during the period referred to in
subparagraph (D) is a bona fide offer to pro-
vide reinsurance coverage to be made available
during the auction for the same contract cycle
and at a reserve price and terms that are sub-
stantially similar to the reserve price and terms
for reinsurance coverage otherwise to be made
available at the auction under this section by
the Secretary, the Secretary shall accept the
offer (if still outstanding) and, notwithstanding
any other provision of this Act, provide that the
reinsurance coverage provided by such entity in
accordance with the offer shall be made avail-
able at the auction; and
(F) if the Secretary accepts an offer pur-
suant to subparagraph (E) to make reinsurance
coverage available at the auction, notwith-
standing any other provision of this Act, the
Secretary shall reduce, to an equivalent extent,
the amount of reinsurance coverage otherwise
to be made available under this Act by the Sec-
retary at the auction, unless and until the Sec-
retary determines that the entity is not com-
plying with the terms of the accepted offer.
SEC. 6. MINIMUM LEVEL OF RETAINED LOSSES AND MAX-
IMUM FEDERAL LIABILITY.
(a) AVAILABLE LEVELS OF RETAINED LOSSES.—In
making reinsurance coverage available under this Act, the
Secretary shall make available for purchase contracts for
such coverage that require the sustainment of retained
losses from a single event of a covered peril (as required
under section 5(b)(3) for payment of eligible losses) in var-
ious amounts, as the Secretary, in consultation with the
Commission, determines appropriate and subject to the re-
quirements under subsection (b) of this section.
(b) MINIMUM LEVEL OF RETAINED LOSSES.—
(1) CUMULATIVE
AMOUNT.—Subject to para-
graphs (2), (3), and (4) and notwithstanding any
other provision of this Act, a contract for reinsur-
ance coverage may not be made available or sold
under section 5 through a regional auction unless
the contract requires that the insurance industry in
the region for which the auction was conducted sus-
tains a cumulative amount of retained losses (in cov-
ered lines resulting from covered perils) of not less
than an amount, determined by the Secretary in
consultation with the Commission, that is in the
range between the amount equal to the eligible loss
projected to be incurred once every 100 years from
a single event in the region and the amount equal
to the eligible loss projected to be incurred once
every 250 years from such an event.
(2) INITIAL ADJUSTMENT BASED ON PRIVATE
MARKET.—The Secretary may, before making con-
tracts for reinsurance coverage under this Act ini-
tially available under section 5, raise the minimum
level of retained losses from the amount required
under paragraph (1) for a region to ensure, as de-
termined by the Secretary, that such contracts com-
ply with the principle under section 2(c)(1).
(3) ANNUAL
ADJUSTMENT.—The Secretary
may annually raise the minimum level of retained
losses established under paragraph (1) for a region
to reflect, as determined by the Secretary—
(A) changes in the capacity of public rein-
surance programs or the private insurance and
reinsurance market;
(B) increases in the market value of prop-
erties; or
(C) such other situations as the Secretary
considers appropriate.
The Secretary shall consider the minimum level of
retained losses requirement in paragraph (1) as a
minimum requirement only and shall have full au-
thority, effective on the date of the enactment of this
Act, to establish levels of required minimum retained
losses in any amount greater than the amounts spec-
ified in such paragraph. In making any determina-
tion under this paragraph in the minimum level of
retained losses, the Secretary shall establish such
level at an amount such that the program under this
Act for making reinsurance coverage available does
not displace or compete with the private insurance
or reinsurance markets or capital markets, as deter-
mined by the Secretary after the Secretary has pro-
vided interested parties an opportunity to submit to
the Commission market information relevant to such
determination and has provided the Commission
with an opportunity to advise the Secretary regard-
ing such information and determination.
(4) OPTIONAL ANNUAL INFLATIONARY OR EX-
POSURE ADJUSTMENT.—The Secretary may, on an
annual basis, raise the minimum level of retained
losses established under paragraph (1) for each re-
gion to reflect the annual rate of inflation or growth
in exposures, whichever is greater. Any such raise
shall be made in accordance with an inflation index
or exposure index, as appropriate, that the Secretary
determines to be appropriate. The first such raise
may be made one year after contracts for reinsur-
ance coverage under this Act are first made avail-
able for purchase.
(c) MAXIMUM FEDERAL LIABILITY.—
(1) IN GENERAL.—Notwithstanding any other
provision of law, the Secretary may sell only con-
tracts for reinsurance coverage under this Act in
various amounts which comply with the following re-
quirements:
(A) ESTIMATE
OF
AGGREGATE
LIABIL-
ITY.—The aggregate liability for payment of
claims under all such contracts in any single
year is unlikely to exceed $25,000,000,000 (as
such amount is adjusted under paragraph (2)).
(B) ELIGIBLE LOSS COVERAGE SOLD.—El-
igible losses covered by all contracts sold within
a State or region during a 12-month period do
not exceed the difference between the following
amounts (each of which shall be determined by
the Secretary in consultation with the Commis-
sion):
(i) The amount equal to the eligible
loss projected to be incurred once every
500 years from a single event in the State
or region.
(ii) The amount equal to the eligible
loss projected to be incurred once every
100 years from a single event in the State
or region.
(2) ANNUAL
ADJUSTMENTS.—The Secretary
shall annually adjust the amount under paragraph
(1)(A) (as it may have been previously adjusted) to
provide for inflation in accordance with an inflation
index that the Secretary determines to be appro-
priate.
(d) LIMITATION ON PERCENTAGE OF RISK IN EX-
CESS OF RETAINED LOSSES.—
(1) IN
GENERAL.—The Secretary may not
make available for purchase contracts for reinsur-