(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 
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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-
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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, 
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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 
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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— 
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(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-
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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)). 
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(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-
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ccoleman on PROD1PC71 with BILLS
ance coverage under this Act that would pay out 
more than 50 percent of eligible losses in excess of 
retained losses for the region for which the contract 
was made available. 
(2) PAYOUT.—For purposes of this subsection, 
the amount of payout from a reinsurance contract 
shall be the amount of eligible losses in excess of re-
tained losses multiplied by the percentage under 
paragraph (1). 
SEC. 7. 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 shall be available 
to the Secretary only for the following purposes: 
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(1) CONTRACT PAYMENTS.—For payments to 
covered purchasers under contracts for reinsurance 
coverage under this Act for eligible losses under such 
contracts. 
(2) COMMISSION COSTS.—To pay for the oper-
ating costs of the Commission. 
(3) ADMINISTRATIVE EXPENSES.—To pay for 
the administrative expenses incurred by the Sec-
retary in carrying out the reinsurance program 
under this Act. 
(4) TERMINATION.—Upon termination under 
section 11, as provided in such section. 
(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 obligations of the Fund as may be 
necessary to cover the insufficiency and shall pur-
chase any such obligations issued. 
(2) PUBLIC DEBT TRANSACTION.—For the pur-
pose of purchasing any such obligations, the Sec-
retary may use as a public debt transaction the pro-
ceeds from the sale of any securities issued under 
chapter 31 of title 31, United States Code, and the 
purposes for which securities are issued under such 
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chapter are hereby extended to include any purchase 
by the Secretary of such obligations under this sub-
section. 
(3) CHARACTERISTICS OF OBLIGATIONS.—Obli-
gations issued under this subsection shall be in such 
forms and denominations, bear such maturities, bear 
interest at such rate, and be subject to such other 
terms and conditions, as the Secretary shall deter-
mine. 
(4) TREATMENT.—All redemptions, purchases, 
and sales by the Secretary of obligations under this 
subsection shall be treated as public debt trans-
actions of the United States. 
(5) REPAYMENT.—Any obligations issued under 
this subsection shall be repaid, including interest, 
from the Fund and shall be recouped from pre-
miums 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) of this 
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