I
107TH CONGRESS
2D SESSION
H. R. 4025
To establish a Federal program to provide reinsurance to improve the
availability of homeowners’ insurance.
IN THE HOUSE OF REPRESENTATIVES
MARCH 20, 2002
Mr. WELDON of Florida (for himself, Mr. JOHN, and Mr. MATSUI) introduced
the following bill; which was referred to the Committee on Financial Services
A BILL
To establish a Federal program to provide reinsurance to
improve the availability of homeowners’ insurance.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) SHORT TITLE.—This Act may be cited as the
‘‘Homeowners’ Insurance Availability Act of 2002’’.
(b) TABLE OF CONTENTS.—The table of contents for
this Act is as follows:
Sec. 1. Short title and table of contents.
Sec. 2. Program authority.
Sec. 3. Qualified lines of coverage.
Sec. 4. Covered perils.
Sec. 5. Auction of contracts for reinsurance coverage.
Sec. 6. Minimum level of retained losses and maximum Federal liability.
Sec. 7. Disaster Reinsurance Fund.
Sec. 8. National Commission on Catastrophe Risks and Insurance Loss Costs.
Sec. 9. Definitions.
Sec. 10. Regulations.
Sec. 11. Termination.
Sec. 12. Annual study of cost and availability of disaster insurance and pro-
gram need.
SEC. 2. PROGRAM AUTHORITY.
(a) IN GENERAL.—The Secretary of the Treasury
shall carry out a program under this Act to make reinsur-
ance coverage available through contracts for reinsurance
coverage under section 5, which shall be made available
for purchase by purchasers under section 5(a)(1) only
through auctions under section 5(a).
(b) PURPOSE.—The program shall be designed to
make reinsurance coverage under this Act available to im-
prove the availability of homeowners’ insurance for the
purpose of facilitating the pooling, and spreading the risk,
of catastrophic financial losses from disasters and to im-
prove the solvency of homeowners’ insurance markets.
(c) CONTRACT PRINCIPLES.—Under the program
under this Act, the Secretary shall offer reinsurance cov-
erage through contracts with covered purchasers, which
contracts—
(1) shall not displace or compete with the pri-
vate insurance or reinsurance markets or capital
markets;
(2) shall minimize the administrative costs of
the Federal Government; and
(3) shall provide coverage based solely on in-
sured losses within the region established pursuant
to section 5(a) for which the auction is held.
SEC. 3. QUALIFIED LINES OF COVERAGE.
Each contract for reinsurance coverage made avail-
able under this Act shall provide insurance coverage
against residential property losses to homes (including
dwellings owned under condominium and cooperative own-
ership arrangements) and the contents of apartment
buildings.
SEC. 4. COVERED PERILS.
Each contract for reinsurance coverage made avail-
able under this Act shall cover losses that are proximately
caused by—
(1) earthquakes;
(2) perils ensuing from earthquakes, including
fire and tsunamis; and
(3) tropical cyclones having maximum sustained
winds of at least 74 miles per hour, including hurri-
canes and typhoons.
The Secretary shall, by regulation, define the disaster per-
ils under this section.
SEC. 5. AUCTION OF CONTRACTS FOR REINSURANCE COV-
ERAGE.
(a) AUCTION PROGRAM REQUIREMENTS.—The Sec-
retary shall carry out a program to auction contracts for
reinsurance coverage under this Act made available pursu-
ant to section 2(a), which shall comply with the following
requirements:
(1) PURCHASERS.—The auction program shall
provide for auctioning all contracts made available
under this section to private insurers and reinsurers,
State insurance and reinsurance programs, and
other interested entities.
(2) REGIONAL
AUCTIONS.—The auction pro-
gram shall provide for auctions on a regional basis.
The Secretary shall divide the States into not less
than 6 regions for the purpose of holding such re-
gional auctions, which shall include separate regions
for all or part of the State of California and all or
part of the State of Florida. In determining the
boundaries for such regions, the Secretary shall con-
sider which areas have greater risks of losses from
covered perils and which areas have lesser risks of
losses from covered perils, and shall attempt not to
combine those different types of areas. Auctions for
each region shall be conducted not less often than
annually.
(3) RESERVE PRICE.—In auctioning contracts
under this section for reinsurance coverage, the Sec-
retary shall set, for each contract, a reserve price
that is the minimum price at which the contract may
be sold, based upon the recommendations of the
Commission. The reserve price shall be determined
on the basis of the following components:
(A) RISK-BASED
PRICE.—A risk-based
price, which shall reflect the anticipated
annualized payout of the contract according to
the actuarial analysis and recommendations of
the Commission.
(B) RISK
LOAD.—A risk load in an
amount that is not less than the risk-based
price under subparagraph (A).
(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 sec-
tion.
(D) MITIGATION.—An adjustment based
on an actuarial analysis that takes into account
any efforts that are being made to reduce losses
to property in the region in which the contract
is being sold.