‘‘(B) QUALIFYING EVENT.—For purposes 
of subparagraph (A), the term ‘qualifying event’ 
means any event that satisfies clauses (i) and 
(ii). 
‘‘(i) EVENT.—An event satisfies this 
clause if the event is 1 or more of the fol-
lowing: 
‘‘(I) Windstorm (hurricane, cy-
clone, or tornado). 
‘‘(II) Earthquake (including any 
fire following). 
‘‘(III) Winter catastrophe (snow, 
ice, or freezing). 
‘‘(IV) Fire. 
‘‘(V) Tsunami. 
‘‘(VI) Flood. 
‘‘(VII) Volcanic eruption. 
‘‘(VIII) Hail. 
‘‘(ii) CATASTROPHE
DESIGNATION.—
An event satisfies this clause if the event—
‘‘(I) is designated a catastrophe 
by Property Claim Services or its suc-
cessor organization, 
‘‘(II) is declared by the President 
to be an emergency or disaster, or
‘‘(III) is declared to be an emer-
gency or disaster in a similar declara-
tion by the chief executive official of a 
State, possession, or territory of the 
United States, or the District of Co-
lumbia. 
‘‘(9) FUND CAP.—
‘‘(A) IN GENERAL.—The term ‘fund cap’ 
for a taxable year is the sum of the separate 
lines of business caps for each of the qualified 
lines of business specified in the table contained 
in subparagraph (C) (as modified under sub-
paragraphs (D) and (E)). 
‘‘(B) SEPARATE
LINES
OF
BUSINESS 
CAP.—For purposes of subparagraph (A), the 
separate lines of business cap, with respect to 
a qualified line of business specified in the table 
contained in subparagraph (C), is the product 
of—
‘‘(i) net written premiums reported in 
the annual statement for the calendar year 
preceding the taxable year in such line of 
business, multiplied by 
‘‘(ii) the fund cap multiplier applica-
ble to such qualified line of business.
‘‘(C) QUALIFIED LINES OF BUSINESS AND 
THEIR RESPECTIVE FUND CAP MULTIPLIERS.—
For purposes of this paragraph, the qualified 
lines of business and fund cap multipliers speci-
fied in this subparagraph are those specified in 
the following table:
‘‘Line of Business on Annual 
Fund Cap 
Statement Blank: 
Multiplier: 
Fire ...............................................................................
0.25
Allied ............................................................................
1.25
Farmowners Multiple Peril ..........................................
0.25
Homeowners Multiple Peril ..........................................
0.75
Commercial Multi Peril (non-liability portion) .............
0.50
Earthquake ...................................................................
13.00
Inland Marine ...............................................................
0.25.
‘‘(D) SUBSEQUENT
MODIFICATIONS
OF 
THE ANNUAL STATEMENT BLANK.—If, with re-
spect to any taxable year beginning after the ef-
fective date of this subsection, the annual state-
ment blank required to be filed is amended to 
replace, combine, or otherwise modify any of 
the qualified lines of business specified in sub-
paragraph (C), then for such taxable year sub-
paragraph (C) shall be applied in a manner 
such that the fund cap shall be the same 
amount as if such reporting modification had 
not been made. 
‘‘(E) 
20-YEAR
PHASE-IN.—Notwith-
standing subparagraph (C), the fund cap for a 
taxable year shall be the amount determined
under subparagraph (C), as adjusted pursuant 
to subparagraph (D) (if applicable), multiplied 
by the phase-in percentage indicated in the fol-
lowing table:
‘‘Taxable year beginning in: 
Phase-in per-
centage to be 
applied to 
fund cap 
computed 
under sub-
paragraphs 
(A) and (B): 
2006 ..............................................................................................
5 percent 
2007 ..............................................................................................
10 percent 
2008 ..............................................................................................
15 percent 
2009 ..............................................................................................
20 percent 
2010 ..............................................................................................
25 percent 
2011 ..............................................................................................
30 percent 
2012 ..............................................................................................
35 percent 
2013 ..............................................................................................
40 percent 
2014 ..............................................................................................
45 percent 
2015 ..............................................................................................
50 percent 
2016 ..............................................................................................
55 percent 
2017 ..............................................................................................
60 percent 
2018 ..............................................................................................
65 percent 
2019 ..............................................................................................
70 percent 
2020 ..............................................................................................
75 percent 
2021 ..............................................................................................
80 percent 
2022 ..............................................................................................
85 percent 
2023 ..............................................................................................
90 percent 
2024 ..............................................................................................
95 percent 
2025 and later ..............................................................................
100 percent 
‘‘(10) TREATMENT
OF
INVESTMENT
INCOME 
AND GAIN OR LOSS.—
‘‘(A) CONTRIBUTIONS IN KIND.—A trans-
fer of property other than money to a fund 
shall be treated as a sale or exchange of such 
property for an amount equal to its fair market 
value as of the date of transfer, and appro-
priate adjustment shall be made to the basis of
such property. Section 267 shall apply to any 
loss realized upon such a transfer. 
‘‘(B) DISTRIBUTIONS IN KIND.—A transfer 
of property other than money by a fund to the 
qualified insurance company shall not be treat-
ed as a sale or exchange or other disposition of 
such property. The basis of such property im-
mediately after such transfer shall be the great-
er of the basis of such property immediately be-
fore such transfer or the fair market value of 
such property on the date of such transfer. 
‘‘(C) INCOME WITH RESPECT TO FUND AS-
SETS.—Items of income of the type described in 
paragraphs (1)(B), (1)(C), and (2) of sub-
section (b) that are derived from the assets held 
in a fund, as well as losses from the sale or 
other disposition of such assets, shall be consid-
ered items of income, gain, or loss of the quali-
fied insurance company. Notwithstanding para-
graph (1)(F) of subsection (b), distributions of 
net income to the qualified insurance company 
pursuant to paragraph (1)(B)(ii) of this sub-
section shall not cause such income to be taken 
into account a second time.
‘‘(11) NET INCOME; NET INVESTMENT LOSS.—
For purposes of paragraph (1)(B)(ii), the net in-
come derived from the assets in the fund for the tax-
able year shall be the items of income and gain for 
the taxable year, less the items of loss for the tax-
able year, derived from such assets, as described in 
paragraph (10)(C). For purposes of paragraph (7), 
there is a net investment loss for the taxable year 
to the extent that the items of loss described in the 
preceding sentence exceed the items of income and 
gain described in the preceding sentence. 
‘‘(12) ANNUAL STATEMENT.—For purposes of 
this subsection, the term ‘annual statement’ shall 
have the meaning set forth in section 846(f)(3). 
‘‘(13) EXCLUSION OF PREMIUMS AND LOSSES 
ON
CERTAIN
PUERTO
RICAN
RISKS.—Notwith-
standing any other provision of this subsection, pre-
miums and losses with respect to risks covered by a 
catastrophe reserve established under the laws or 
regulations of the Commonwealth of Puerto Rico 
shall not be taken into account under this subsection 
in determining the amount of the fund cap or the 
amount of qualified losses. 
‘‘(14) REGULATIONS.—The Secretary shall pre-
scribe such regulations as may be necessary or ap-
propriate to carry out the purposes of this sub-
section, including regulations—
‘‘(A) which govern the application of this 
subsection to a qualified insurance company 
having a taxable year other than the calendar 
year or a taxable year less than 12 months, 
‘‘(B) which govern a fund maintained by a 
qualified insurance company that ceases to be 
subject to this part, and 
‘‘(C) which govern the application of para-
graph (9)(D).’’. 
(d) EFFECTIVE DATE.—The amendments made by 
this section shall apply to taxable years beginning after 
December 31, 2005.
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