I
105TH CONGRESS
1ST SESSION
H. R. 219
To establish a Federal program to provide reinsurance for State disaster
insurance programs.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 7, 1997
Mr. LAZIO of New York (for himself, Mr. FAZIO of California, and Mr.
MCCOLLUM) introduced the following bill; which was referred to the Com-
mittee on Banking and Financial Services
A BILL
To establish a Federal program to provide reinsurance for
State disaster insurance programs.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ‘‘Homeowners’ Insur-
ance Availability Act of 1997’’.
SEC. 2. CONGRESSIONAL FINDINGS.
The Congress finds that—
(1) the rising costs resulting from natural dis-
asters in recent years have placed a strain on home-
owners’ insurance markets in many areas, jeopardiz-
ing the ability of many consumers to adequately in-
sure their homes and possessions;
(2) the lack of a sufficient insurance capacity
threatens to increase the number of uninsured home-
owners, which, in turn, increases the risk of mort-
gage defaults and the strain on the Federal banking
system;
(3) some States have intervened to ensure the
continued availability of homeowners’ insurance for
all residents;
(4) it is appropriate that efforts to improve in-
surance availability be designed and implemented at
the State level;
(5) while State insurance programs may be ade-
quate to cover losses from most natural disasters, a
small percentage of events are likely to exceed the fi-
nancial capacity of these programs and the local in-
surance market;
(6) Federal reinsurance for State disaster in-
surance programs will improve the effectiveness of
such State initiatives and increase the likelihood that
homeowners’ insurance claims will be fully paid in
the event of a large natural catastrophe; and
(7) any Federal reinsurance program must be
founded upon sound actuarial principles and priced
in a manner that minimizes the potential impact on
the Treasury.
SEC. 3. PROGRAM AUTHORITY.
(a) PROGRAM.—The Secretary of the Treasury shall
carry out a program under this Act to make reinsurance
coverage available to eligible State insurance programs.
The reinsurance coverage shall be designed to improve the
availability of homeowners’ insurance for the purpose of
facilitating the pooling, and spreading the risk, of cata-
strophic financial losses from natural disasters and to im-
prove the solvency of homeowners’ insurance markets.
(b) CONTRACTS.—Under the program under this Act,
the Secretary shall offer reinsurance coverage through
contracts with eligible purchasers under section 4, which
contracts—
(1) shall provide coverage based solely on insur-
ance industry losses within the State of the eligible
purchaser purchasing the contract;
(2) shall not interfere in private markets; and
(3) shall minimize the administrative costs of
the Federal Government.
SEC. 4. ELIGIBLE PURCHASERS.
The following entities shall be qualified to purchase
contracts for reinsurance coverage made available under
this Act:
(1) STATE INSURANCE PROGRAMS.—State-oper-
ated insurance programs which offer coverage for
homes, condominiums, and the contents of apart-
ments to State residents because of the finding of
the State insurance commissioner that such a pro-
gram is necessary in order to provide for the contin-
ued availability of such residential coverage for all
residents.
(2) STATE
REINSURANCE
PROGRAMS.—State-
operated reinsurance programs designed to improve
private insurance markets which offer coverage for
homes, condominiums, and the contents of apart-
ments because of the finding of the State insurance
commissioner that such a program is necessary in
order to provide for the continued availability of
such residential coverage for all residents.
SEC. 5. QUALIFIED LINES OF COVERAGE.
A contract for reinsurance coverage made available
under this Act shall provide insurance coverage against
the following losses:
(B) RISK LOAD.—A risk load, determined
by the Secretary, of not less than 2 times the
risk-based price.
(C) ADMINISTRATIVE COSTS.—A sum suf-
ficient to provide for the operation of the Com-
mission and the administrative expenses in-
curred by the Secretary in carrying out this
Act.
The rates for reinsurance coverage shall produce ex-
pected premiums which shall be sufficient to pay for
all claims, loss adjustment expense, and all adminis-
trative costs due to the reinsurance coverage for the
Fund under section 9.
(6) REPAYMENT
TERMS.—The contract shall
require that an eligible purchaser under section 4
which receives payments for qualifying claims that
consist of amounts derived from obligations issued
under section 9(d) shall—
(A) continue to purchase the reinsurance
coverage provided under this Act at levels which
are at least as great as before the receipt of
such payments until such borrowed monies, in-
cluding interest, are repaid pursuant to section
9(d)(3)(C); or
(B) repay the portion of such payment de-
rived from such obligations, including interest,
within a reasonable period established by the
Secretary.
(7) OTHERS.—The contract shall contain such
other terms as the Secretary considers necessary to
ensure the long-term financial integrity of the pro-
gram under this Act.
SEC. 8. LEVEL OF RETAINED LOSSES AND MAXIMUM FED-
ERAL LIABILITY.
(a) LEVEL OF RETAINED LOSSES.—In making rein-
surance coverage available under this Act, the Secretary
shall make available for purchase contracts for reinsur-
ance coverage that require that the eligible purchaser pur-
chasing the contract sustain an amount of retained losses
(as required under section 7(3) for payment of eligible
losses) in each of the following amounts:
(1) $2,000,000,000.
(2) $10,000,000,000.
(3) Any such other amount, as the Secretary
determines appropriate.
Notwithstanding any other provision of this Act, an eligi-
ble purchaser under section 4 may not purchase a contract
for reinsurance coverage under this Act requiring an
amount of retained losses that is less than the current
claims-paying capacity for the State-operated insurance or
reinsurance program that is the eligible purchaser, as de-
termined by the Secretary.
(b) MAXIMUM FEDERAL LIABILITY.—
(1) IN GENERAL.—Except as provided in para-
graph (3) and notwithstanding any other provision
of law, the maximum amount paid in any single year
by the Secretary pursuant to claims under all con-
tracts for reinsurance under this Act shall not ex-
ceed $25,000,000,000 (except that such dollar
amount shall be adjusted as provided in paragraph
(2)). If, in any single year, claims under existing
contracts for reinsurance exceed $25,000,000,000
(or the amount determined pursuant to adjustment
under paragraph (2)), each claimant shall receive a
prorated portion of the amount available for pay-
ment of claims.
(2) ANNUAL ADJUSTMENT.—Upon the expira-
tion of the 4-year period beginning on the date that
contracts for reinsurance coverage under this Act
are first made available for purchase, and annually
thereafter, the Secretary may adjust the dollar
amounts set forth in paragraph (1) (as so previously
adjusted), to reflect the percentage growth in pre-
mium for insurance which covers property under
qualified lines.
(3) TRANSITION LIMITATION.—
(A) IN GENERAL.—During the 4-year pe-
riod beginning on the date of the enactment of
this Act, the Secretary shall establish and peri-
odically revise a dollar amount which shall be
the maximum amount that may be paid in any
single year during such period pursuant to
claims under all contracts for reinsurance under
this Act. Such dollar amount limitation may not
in any event exceed $25,000,000,000. If, in any
single year during such period, claims under ex-
isting contracts for reinsurance exceed the dol-
lar amount limitation established for such year
pursuant to this paragraph, each claimant shall
receive a prorated portion of the amount avail-
able for payment of claims.
(B) ESTABLISHMENT.—In establishing any
dollar amount limitation pursuant to paragraph
(1), the Secretary shall take into consider-
ation—
(i) the need for expanding the reinsur-
ance program under this Act;
(ii) the amount available in the Fund
established under section 9 and any ex-
pected future credits to the Fund; and
(iii) the availability of amounts pursu-
ant to section 9(d).
SEC. 9. DISASTER REINSURANCE FUND.
(a) ESTABLISHMENT.—There is established within
the Treasury of the United States a fund to be known
as the Disaster Reinsurance Fund (in this section referred
to as the ‘‘Fund’’).
(b) CREDITS.—The Fund shall be credited with—
(1) amounts received annually from the sale of
contracts for reinsurance coverage under this Act;
(2) any amounts borrowed under subsection
(d);
(3) any amounts earned on investments of the
Fund pursuant to subsection (e); and
(4) such other amounts as may be credited to
the Fund.
(c) USES.—Amounts in the Fund may be used only
to the extent approved in appropriation Acts and only for
the following purposes:
(1) CONTRACT PAYMENTS.—For payments to
purchasers of contracts for reinsurance coverage for
eligible losses under such contracts.
(2) COMMISSION COSTS.—To pay for the oper-
ating costs of the National Commission on Catas-
trophe Risks and Insurance Loss Costs established
under section 10.
(3) ADMINISTRATIVE EXPENSES.—To pay for
the administrative expenses incurred by the Sec-
retary in carrying out the reinsurance program
under this Act.
(d) BORROWING.—
(1) AUTHORITY.—To the extent that the
amounts in the Fund are insufficient to pay claims
and expenses under subsection (c), the Secretary
may issue such notes and other obligations as may
be necessary to cover the insufficiency.
(2) INTEREST
RATES.—Any such obligations
shall bear interest at a rate determined by the Sec-
retary, taking into consideration the current market
yields on outstanding marketable obligations of the
United States of comparable maturities.
(3) CONDITIONS.—The following conditions
shall apply to any obligations issued under this sub-
section:
(A) The total amount of outstanding obli-
gations at any given time shall not exceed the
capacity of the Fund to repay such obligations
within 20 years.
(B) The Secretary may issue such obliga-
tions only to such extent and in such amounts
as are provided in appropriations Acts.
(C) Any obligations issued under this sub-
section shall be repaid, including interest, from
the Fund and shall be recouped from premiums
charged for reinsurance coverage provided
under this Act.
(e) INVESTMENT.—If the Secretary determines that
the amounts in the Fund are in excess of current needs,
the Secretary may invest such amounts as the Secretary
considers advisable in obligations issued or guaranteed by
the United States.
(f) PROHIBITION OF FEDERAL FUNDS.—Except for
amounts made available pursuant to subsection (d) and
section 10(g), no Federal funds shall be authorized or ap-
propriated for the Fund or for carrying out the reinsur-
ance program under this Act.
SEC. 10. NATIONAL COMMISSION ON CATASTROPHE RISKS
AND INSURANCE LOSS COSTS.
(a) ESTABLISHMENT.—The Secretary shall establish
a commission to be known as the National Commission
on Catastrophe Risks and Insurance Loss Costs (in this
section referred to as the ‘‘Commission’’).
(b) DUTIES.—The Commission shall meet for the sole
purpose of advising the Secretary regarding the estimated
loss costs associated with the contracts for reinsurance
available under this Act.
(c) MEMBERS.—The membership of the Commission
shall be appointed at the discretion of the Secretary, but
shall include at least 4 professional actuaries, 2 represent-
atives of State insurance departments, 2 experts in the
field of disaster modeling, a structural engineer, a mete-
orologist, and a seismologist.
(d) EXPERTISE.—Each member appointed to the
Commission shall be recognized as qualified in a field re-
lated to natural disaster risk assessment or insurance.
(e) TREATMENT
OF NON-FEDERAL MEMBERS.—
Each member of the Commission who is not otherwise em-
ployed by the Federal Government shall be considered a
special Government employee for purposes of section 202
of title 18, United States Code.
(f) COMPENSATION.—Each member of the Commis-
sion who is not an officer or employee of the Federal Gov-
ernment shall be compensated at a rate of basic pay pay-
able for level V of the Executive Schedule, for each day
(including travel time) during which such member is en-
gaged in the performance of the duties of the Commission.
All members of the Commission who are officers or em-
ployees of the United States shall serve without compensa-
tion in addition to that received for their services as offi-
cers or employees of the United States.
(g) FUNDING.—
(1) AUTHORIZATION
OF
APPROPRIATIONS.—
There are authorized to be appropriated—
(A) $1,000,000 for fiscal year 1997 for the
initial expenses in establishing the Commission
and the initial activities of the Commission, as
determined by the Secretary of the Treasury;
and
(B) such additional sums as may be nec-
essary to carry out subsequent activities of the
Commission.
(2) OFFSET.—The Secretary shall provide, to
the maximum extent practicable, that an amount
equal to any amount appropriated under paragraph
(1) is obtained from purchasers of reinsurance cov-
erage under this Act and deposited in the Fund es-
tablished under section 9. Such amounts shall be ob-
tained by inclusion of a provision for the Commis-
sion’s expenses incorporated into the pricing of the
contracts for such reinsurance coverage, pursuant to
section 7(5)(C).
SEC. 11. REPORT ON SECONDARY MARKET MECHANISM
FOR REINSURANCE CONTRACTS.
Not later than the expiration of the 18-month period
beginning on the date of the enactment of this Act, the
Secretary shall submit to the Congress a report that—
(1) analyzes the extent of the market for resale
of reinsurance contracts under this Act by the Sec-
retary in the capital markets;
(2) proposes a program or system for making
not less than 20 percent of the total written dollar
value of such contracts available for purchase; and
(3) contains recommendations for any statutory
changes necessary to operate such a program or sys-
tem.
SEC. 12. DEFINITIONS.
For purposes of this Act, the following definitions
shall apply:
(1) COVERED PERILS.—The term ‘‘covered per-
ils’’ means the natural disaster perils under section
6.
(2) QUALIFIED
LINES.—The term ‘‘qualified
lines’’ means lines of insurance coverage for which
losses are covered under section 5 by reinsurance
coverage under this Act.
(3) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of the Treasury.
(4) STATE.—The term ‘‘State’’ means the
States of the United States, the District of Colum-
bia, the Commonwealth of Puerto Rico, the Com-
monwealth of the Northern Mariana Islands, Guam,
the Virgin Islands, American Samoa, and any other
territory or possession of the United States.
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