HR 481 IH
Director written comments and recommendations for any
changes to the plan. After final regulations establishing
the plan of operation have been issued, the Committee
shall submit a written report not less than once every 180
days to the Director and the Congress evaluating the oper-
ation of the Federal earthquake, volcanic eruption, and
hurricane insurance and reinsurance programs under this
title and making recommendations for any actions relating
to such programs. The Committee shall respond as soon
as practicable to all requests of the Director made pursu-
ant to subsection (g) or section 201(e)(4)(C).
(g) RESPONSIBILITIES OF THE DIRECTOR.—The Di-
rector shall fully cooperate with the Committee and pro-
vide the Committee with access to personnel and informa-
tion as the Committee considers necessary to carry out
its functions. The Director shall request comments from
the Committee on any questions regarding operation of
the Federal earthquake, volcanic eruption, and hurricane
insurance and reinsurance programs established under
this title.
SEC. 208. RESIDENTIAL PROPERTY INSURANCE FUND.
(a) ESTABLISHMENT.—There is established in the
Treasury of the United States the Residential Property
Insurance Fund for the purpose of carrying out the
Primary Insurance Program under this title.
HR 481 IH
(b) CREDITS OF FUND.—The Insurance Fund shall
be credited with—
(1) insurance premiums received by the Direc-
tor under the Primary Insurance Program (less any
amounts credited to the Self-Sustaining Mitigation
Fund under section 104) and interest earned on pre-
miums, as provided in subsection (e) of this section;
(2) any amounts borrowed under section 209;
(3) any amounts appropriated to the Insurance
Fund; and
(4) any interest earned on amounts invested
under subsection (d).
(c) USES
OF FUND.—Amounts in the Insurance
Fund shall be available for—
(1) payments for losses and loss adjustment ex-
penses under subsection (f);
(2) payments for insurance company expense
allowances paid (including agents’ commissions,
State premium taxes, and companies’ administration
expenses);
(3) administrative expenses of the Primary In-
surance Program; and
(4) interest payments on amounts borrowed
under section 209 for additional losses, if any.
HR 481 IH
(d) INVESTMENT OF AMOUNTS.—The Director may
request the Secretary of Treasury to invest any amount
in the Residential Property Insurance Fund in obligations
issued or guaranteed by the United States, as the Director
considers appropriate.
(e) INSURANCE PAYMENTS TO FUND.—Private insur-
ers issuing earthquake, volcanic eruption, and hurricane
insurance coverage shall remit the premiums collected, less
the insurers’ expense allowances (as provided for in the
plan of operation), to the Director on a quarterly basis
30 days after the end of the quarter, according to the pro-
cedures prescribed in the plan of operation. Such private
insurers shall maintain a separate, interest-bearing ac-
count for the premiums to be submitted to the Director.
The interest collected on this account shall be forwarded
to the Residential Property Insurance Fund with the
premiums on a quarterly basis.
(f) REIMBURSEMENT OF INSURERS.—
(1) REQUIREMENT AND PROCEDURE.—The Di-
rector shall reimburse private insurers providing
earthquake, volcanic eruption, and hurricane insur-
ance coverage pursuant to this title from amounts
made available from the Insurance Fund. Reim-
bursement for all claim payments up to and includ-
ing the policy limits of coverage and for all loss ad-
HR 481 IH
justment expenses paid as a result of earthquake,
volcanic eruption, and hurricane shall be made as
follows:
(A) The Director shall reimburse insurers
for all claim payments and loss adjustment ex-
pense payments made pursuant to the Federal
Government’s obligations. To the extent that
reimbursement is obtained by private insurers
for losses also covered under the Reinsurance
Program, the insurer shall reimburse the Resi-
dential Property Insurance Fund accordingly.
(B) If the gross reimbursements exceed
amounts available in the Residential Property
Insurance Fund, a combination of amounts bor-
rowed from the industry under subparagraph
(C) and amounts borrowed from the Treasury
of the United States under section 209 shall
cover the additional losses.
(C) The industry share under subpara-
graph (B) shall be equivalent to 10 percent of
the additional losses. Private insurers issuing
earthquake, volcanic eruption, and hurricane
coverage shall be assessed for the industry par-
ticipation in the additional losses based upon
the proportion that each insurer’s written pre-
HR 481 IH
miums for this coverage in each State in which
the earthquake, volcanic eruption, or hurricane
events occurred bear to the total written pre-
miums for such coverage from all insurers in
each State in which the same events occurred,
based on the most recently published annual re-
port of the Federal Emergency Management
Agency. Assessments under this subparagraph
may be reinsured under title III.
(2) REGULATIONS.—The Director may issue
regulations establishing the general method or meth-
ods by which proved and approved claims for losses
may be adjusted and paid for damages covered by
the earthquake, volcanic eruption, and hurricane
coverage issued under this title. The claim practices
of the Insurance Fund shall be subject to and con-
form with any applicable State insurance unfair
trade practices statutes. Judicial review of a decision
of the Director regarding reimbursement of a private
insurer shall be available pursuant to section 201(d).
(g) OBLIGATIONS.—All earthquake, volcanic erup-
tion, and hurricane insurance coverage provided through
the Primary Insurance Program under this title shall con-
stitute obligations, in accordance with the provisions of
this title, of the United States. The full faith and credit
HR 481 IH
of the United States is pledged for the full payment and
performance of such obligations, subject to the provisions
of subsection (f)(1)(C). The private insurers participating
in the program shall bear no risk and shall assume no
liability for the earthquake, volcanic eruption, and hurri-
cane coverage provided through the program except as
provided in subsection (f)(1)(C).
(h) STATUS OF FUND.—Any premiums collected for
deposit in the Insurance Fund shall be exempt from all
taxation now or hereafter imposed by the United States,
by any territory, dependency or possession thereof, or by
the State, county, municipality, or local taxing authority,
except that the insurance policies issued by or in conjunc-
tion with the Federal Government pursuant to this title
shall be subject, where applicable, to State insurance pre-
mium taxes.
SEC. 209. BORROWING FROM TREASURY.
(a) AUTHORITY.—To the extent that the accumulated
assets, including any return on investments, in the Resi-
dential Property Insurance Fund are insufficient to pay
claims and expenses, the Director shall issue, from time
to time, to the Secretary of the Treasury, notes and other
obligations to cover the insufficiency; except that the
amounts of such obligations outstanding at any one time
shall not exceed—
HR 481 IH
(1) $25,000,000,000 (or such greater amount
as may be approved by the President); and
(2) such sums as the Congress may provide act-
ing upon the recommendation of the Director.
(b) INTEREST RATE.—Obligations under subsection
(a) shall bear interest at a rate determined by the Sec-
retary of the Treasury, taking into consideration the cur-
rent average market yield on outstanding marketable obli-
gations of the United States of comparable maturities.
(c) DEPOSITS.—Any amounts borrowed by the Direc-
tor under this section shall be deposited in the Residential
Property Insurance Fund.
(d) REPAYMENT.—Any amounts borrowed under this
section shall be recouped, including interest on the bor-
rowed funds, in future chargeable rates for earthquake,
volcanic eruption, and hurricane coverage pursuant to the
plan of operation. The Secretary of the Treasury shall lib-
erally grant extensions in repayment schedules that the
Director advises the Secretary are necessary.
HR 481 IH
TITLE 
III—NATIONAL 
EARTH-
QUAKE, 
VOLCANIC 
ERUP-
TION, AND HURRICANE EX-
CESS 
LOSS 
REINSURANCE
PROGRAM
SEC. 301. REINSURANCE PROGRAM.
(a) AVAILABILITY.—
(1) INITIAL.—Upon the issuance of final regu-
lations establishing the plan of operation under sec-
tion 201, the Director shall make available, to any
private insurer participating in the Primary Insur-
ance Program under title II or any private reinsurer
which reinsures any such private insurer, excess re-
insurance coverage for direct and indirect losses that
are not eligible for insurance coverage under title II
and arise from an earthquake, a volcanic eruption,
or a hurricane.
(2) EXPANDED.—Upon the expiration of the 2-
year period beginning upon issuance of the regula-
tions referred to in paragraph (1), the Director shall
make available, to any private insurer or private re-
insurer, excess reinsurance coverage for direct and
indirect losses that are not eligible for insurance cov-
erage under title II and arise from an earthquake,
a volcanic eruption, or a hurricane. Each private in-
HR 481 IH
surer or reinsurer participating in the Primary In-
surance Program under title II shall purchase the
excess reinsurance coverage under this title.
(b) LIABILITY.—Excess reinsurance under this title
shall be offered as follows:
(1) INDUSTRY.—The Reinsurance Fund shall
be liable with respect to such reinsurance in the
event of an earthquake, a volcanic eruption, or a
hurricane after the insurance industry has incurred
losses and loss adjustment expenses from the single
event that are covered under the lines set forth in
section 302(a) and that exceed 8 percent of the in-
dustry countrywide subject net written premium, as
determined by the Director.
(2) FEDERAL GOVERNMENT.—After the insur-
ance industry has sustained losses described in para-
graph (1), the Federal Government shall be liable to
an individual private insurer or private reinsurer for
95 percent of qualifying losses in excess of 8 percent
of the private insurer’s or private reinsurer’s coun-
trywide subject net written premium.
(c) QUALIFYING LOSSES.—For the purposes of sub-
section (b), the term ‘‘qualifying losses’’ means losses and
loss adjustment expenses incurred by a private insurer or
private reinsurer from an earthquake (including losses and
HR 481 IH
loss adjustment expenses from foreshocks and aftershocks
attributable to the same event and including separate
earthquakes occurring within a 12-month period encom-
passing the event described in subsection (b)(1) whose in-
curred losses and loss adjustment expenses exceed 2 per-
cent of the private insurer’s or private reinsurer’s country-
wide subject net written premium), a volcanic eruption,
or a hurricane, reduced—
(1) by any collectible reinsurance recoverable;
and
(2) if the percentage of uncollectible reinsur-
ance arising from the event, as compared to total re-
insurance (other than earthquake, volcanic eruption,
or hurricane excess catastrophe reinsurance pur-
chased from the Federal Government) with respect
to the event is—
(A) more than 0 but not more than 5 per-
cent, by 0 percent of such uncollectible reinsur-
ance amount;
(B) more than 5 percent, but not more
than 15 percent, by 33.33 percent of the
uncollectible reinsurance amount above 5 per-
cent;
(C) more than 15 percent, but not more
than 25 percent, by—
HR 481 IH
(i) the amount determined under sub-
paragraph (B); and
(ii) 66.66 percent of the uncollectible
reinsurance amount above 15 percent; and
(D) more than 25 percent, by—
(i) the amount determined under sub-
paragraph (C); and
(ii) 100 percent of the uncollectible re-
insurance amount above 25 percent.
(d) OTHER ELIGIBILITY.—
(1) IN
GENERAL.—Notwithstanding the re-
quirements of subsections (b) and (c), a private in-
surer or private reinsurer shall be eligible for excess
reinsurance coverage and reimbursement from the
Federal Government if the insurer or reinsurer has
incurred losses, prior to any reinsurance coverage,
from a single event that are included in the lines
covered in section 302(a) and that exceed 50 percent
of their countrywide subject direct written premium
or their countrywide subject net written premium,
whichever is greater.
(2) LIABILITY.—After the private insurer or
private reinsurer has sustained losses described in
paragraph (1), the Federal Government shall be lia-
ble for 95 percent of qualifying losses, as defined in
HR 481 IH
subsection (c), in excess of 20 percent of the private
insurer’s or the private reinsurer’s countrywide sub-
ject net written premium.
(3) LIMITATION ON LIABILITY.—The liability of
the Federal Government under this subsection shall
be limited to 200 percent of the private insurer’s
countrywide subject direct net written premium and
600 percent of the private reinsurer’s countrywide
subject assumed net written premium. In the event
a company is both a private insurer and a private
reinsurer, the liability limits shall be 200 percent of
their subject direct net written premium and 600
percent of their subject assumed net written pre-
mium. Intracompany or intragroup reinsurance ar-
rangements or contracts shall not be considered as
reinsurance in the calculation of insurance and rein-
surance subject direct or subject assumed net writ-
ten premium under this subsection.
(e) DEFINITIONS.—For purposes of this title:
(1) The term ‘‘subject assumed net written pre-
mium’’ means premiums received from other insur-
ance companies for reinsurance less ceded reinsur-
ance, for all lines of coverage listed in section 302.
(2) The term ‘‘subject direct net written pre-
mium’’ means the aggregate amount of recorded
HR 481 IH
originated premiums, other than reinsurance, issued
during the year whether collected or not at the close
of the year (plus retrospective audit premium collec-
tions) after deducting all return premiums and ceded
reinsurance premiums, for all lines of coverage listed
in section 302.
(3) The term ‘‘subject net written premium’’
means direct and reinsurance premiums received by
private insurers and private reinsurers, less pre-
miums paid for ceded reinsurance, for all lines of
coverage listed in section 302.
(4) The term ‘‘uncollectible reinsurance’’ means
reinsurance proceeds due and payable in accordance
with the terms of the reinsurance contract which are
not paid within 12 months of the due date.
SEC. 302. LINES OF INSURANCE.
(a) COVERED LINES.—The Director shall provide re-
insurance coverage to private insurers for all of the follow-
ing lines of insurance appearing in the National Associa-
tion of Insurance Commissioners Fire and Casualty An-
nual Statement filed with the applicable State department
of insurance:
(1) Fire.
(2) Allied Lines.
(3) Farmowner’s Multiple Peril.
HR 481 IH
(4) Homeowner’s Multiple Peril.
(5) Commercial Multiple Peril.
(6) Ocean Marine.
(7) Inland Marine.
(8) Earthquake.
(9) Workers Compensation.
(10) Other Liability.
(11) Aircraft (All Perils).
(12) Glass.
(13) Burglary and Theft.
(14) Boiler and Machinery.
(15) Reinsurance.
Reinsurance coverage must be purchased for all covered
lines of insurance and in all affected seismic, volcanic, and
hurricane rating zones in earthquake-prone, volcanic erup-
tion-prone, or hurricane-prone States with the rates for
such coverage set by the Director, pursuant to section
303.
(b) OTHER LINES.—The Federal Government shall
provide reinsurance coverage to private reinsurers for all
of the lines of insurance referred to in subsection (a) as
well as other lines of insurance appearing in the National
Association of Insurance Commissioners Fire and Cas-
ualty Annual Statement, as determined by the Director
HR 481 IH
in the plan of operation and in consultation with the
Insurance and Reinsurance Advisory Committee.
SEC. 303. RATES.
(a) ESTABLISHMENT.—The Director shall establish
the rates for the excess reinsurance coverage and adjust
the rates when necessary using generally accepted actuar-
ial principles. To the maximum extent practicable, such
rates shall be actuarial rates which produce a minimum
degree of cross-subsidization over an extended period of
time consistent with the infrequency of catastrophic earth-
quakes, volcanic eruptions, and hurricanes. In setting and
adjusting the rates, the Director shall provide that, over
an extended period of time, expected expenditures from
the Reinsurance Fund under section 305(c) do not exceed
expected receipts of the Reinsurance Fund under section
305(b).
(b) CONSIDERATIONS.—In setting or adjusting such
rates, the Director shall also provide for a minimum de-
gree of cross-subsidization among classes of reinsureds by
reasonably reflecting the differences in risk of and vulner-
ability to loss from earthquakes, volcanic eruptions, and
hurricanes that would be subject to payment from the
Reinsurance Fund, by giving due consideration to the
following:
HR 481 IH
(1) The premium volume of the reinsured by
line of insurance under section 302(a) by seismic,
volcanic, and hurricane zone or State in which the
risks insured or reinsured by the reinsurer are lo-
cated.
(2) The proportion of the total expected amount
of payments for qualifying losses and loss adjust-
ment expenses by line of insurance under section
302(a) by seismic, volcanic, and hurricane zone or
State expected for each reinsured.
(c) LIMITATION.—Any rate classification system used
by the Director under this section shall be cost-effective
and shall not impose costs for the initial establishment or
the subsequent administration of the rating plan that are
disproportionate to the size of the premiums.
(d) QUARTERLY PAYMENT.—Premiums paid to the
Reinsurance Fund for reinsurance coverage under this
title shall be paid on a quarterly basis and shall be accu-
mulated in the Reinsurance Fund, to be managed pursu-
ant to section 305.
SEC. 304. REINSURANCE CONTRACTS.
(a) TERMS.—The reinsurance contracts issued by the
Federal Government pursuant to this title shall contain
terms and conditions similar to those generally used in
private catastrophic reinsurance contracts.
HR 481 IH
(b) JUDICIAL REVIEW.—Judicial review of a decision
of the Director regarding payment of claims shall be made
available pursuant to section 201(d).
(c) OBLIGATIONS.—All reinsurance contracts issued
under this title shall constitute obligations, in accordance
with the terms of such reinsurance, of the United States.
The full faith and credit of the United States is pledged
for the full payment and performance of such obligations.
(d) SINGLE ENTITIES.—Any private insurance and
reinsurance companies under the same ownership or man-
agement, as determined under the plan of operation, shall
be considered a single entity for purposes of this title.
SEC. 305. REINSURANCE FUND.
(a) ESTABLISHMENT.—There is established in the
Treasury of the United States the Reinsurance Fund for
the purposes of carrying out the excess loss reinsurance
program under this title.
(b) CREDITS
OF FUND.—The Reinsurance Fund
shall be credited with—
(1) any reinsurance premiums received by the
Director under the excess loss reinsurance program;
(2) any amounts borrowed under section 306;
and
(3) any amounts earned under subsection (d).
HR 481 IH
(c) USE OF FUND.—The Reinsurance Fund shall be
available to the Director for—
(1) payments for qualifying losses and loss ad-
justment expenses under the excess loss reinsurance
program under this title;
(2) administrative expenses of carrying out the
program; and
(3) interest payments on amounts borrowed
from the Treasury under section 306, if any.
(d) INVESTMENT.—The Director shall request the
Secretary of the Treasury to invest any amounts in the
Reinsurance Fund in obligations issued or guaranteed by
the United States, as the Director considers appropriate.
(e) STATUS OF FUNDS.—Any reinsurance premiums
collected for deposit in the Reinsurance Fund shall be ex-
empt from all taxation now or hereafter imposed by the
United States, by any territory, dependency or possession
thereof, or by any State, county, municipality, or local tax-
ing authority, except that the insurance policies issued by
or in conjunction with the Federal Government pursuant
to this title shall be subject, where applicable, to State
insurance premium taxes.
SEC. 306. BORROWING FROM TREASURY.
(a) AUTHORITY.—To the extent that the accumulated
assets, including any return on investments, in the Rein-
HR 481 IH
surance Fund are insufficient to pay claims and expenses,
the Director shall issue, from time to time, to the Sec-
retary of the Treasury, notes and other obligations to
cover the insufficiency; except that the amounts of such
obligations outstanding at any one time shall not exceed—
(1) $25,000,000,000 (or such greater amount
as may be approved by the President); and
(2) such sums as the Congress may provide act-
ing upon the recommendation of the Director.
(b) INTEREST RATE.—Obligations under subsection
(a) shall bear interest at a rate determined by the Sec-
retary of the Treasury, taking into consideration the cur-
rent average market yield on outstanding marketable obli-
gations of the United States of comparable maturities.
(c) DEPOSITS.—Any amounts borrowed by the Direc-
tor under this section shall be deposited in the Reinsur-
ance Fund.
(d) REPAYMENT.—Any amounts borrowed pursuant
to this section shall be recouped, including interest on the
borrowed funds, in future rates for excess reinsurance cov-
erage pursuant to the plan of operation. The Secretary
of the Treasury shall liberally grant extensions in repay-
ment schedules that the Director advises the Secretary are
necessary.
Æ