the lines of insurance described in subpara-
graph (B).
(B) The lines of insurance described in
this subparagraph are listed in the most recent
fire and casualty annual statement of the Na-
tional Association of Insurance Commissioners
as—
(i) commercial multiple peril;
(ii) workers’ compensation;
(iii) allied lines;
(iv) farm owners;
(v) fire;
(vi) reinsurance;
(vii) liability;
(viii) earthquake;
(ix) inland marine; or
(x) ocean marine.
(4) COMMERCIAL PROPERTY.—The term ‘‘com-
mercial property’’ means—
(A) nonresidential property that is subject
to commercial losses; and
(B) includes any building that is occupied
as a condominium, apartment, or cooperative.
(5) CRITICAL FACILITY.—The term ‘‘critical fa-
cility’’ means any school or structure that is essen-
tial to emergency services necessary for recovery
after a natural disaster, including a hospital, fire, or
police facility, temporary shelter, or emergency oper-
ating and preparedness center.
(6) DIRECTOR.—The terms ‘‘Director of the
Agency’’ and ‘‘Director’’ mean the Director of the
Federal Emergency Management Agency.
(7) EARTHQUAKE.—The term ‘‘earthquake’’
means any shaking or trembling of the crust of the
earth that is caused by underground seismic forces.
(8) 
EMERGENCY
RESPONDER.—The 
term
‘‘emergency responder’’ means any fire fighting, po-
lice, or other emergency medical personnel who has
the authority under applicable law to engage in and
provide immediate emergency response services.
(9) FLOOD.—The terms ‘‘flood’’ and ‘‘flooding’’
mean a general and temporary condition of partial
or complete inundation of a normally dry land area
that results from—
(A) the overflow of inland or tidal waters;
or
(B) the unusual and rapid accumulation of
runoff or surface waters from any source.
(10) HAZARD MITIGATION.—The term ‘‘hazard
mitigation’’ means sustained action to reduce or
eliminate long-term risk to people and property from
natural disaster hazards and the effects of those
hazards.
(11) HURRICANE.—The term ‘‘hurricane’’—
(A) means a nonfrontal, warm core, low
pressure atmospheric system that is officially
declared to be—
(i) a hurricane by the National Hurri-
cane Center or the Central Pacific Hurri-
cane Center; or
(ii) a typhoon by the Joint Typhoon
Warning Center; and
(B) includes any associated windstorm
events.
(12) LIFELINE.—The term ‘‘lifelines’’ means
public works and utilities, including transportation
facilities and infrastructure, oil and gas pipelines,
electrical power and communication facilities, and
water supply and sewage treatment facilities.
(13) LOCAL
COMMUNITY.—The term ‘‘local
community’’ means a political subdivision of a State
that has a department or similar entity that oversees
local zoning and building code compliance.
(14) LOSS COSTS.—The term ‘‘loss costs’’—
(A) means the actuarially based mean an-
nual amount or appropriate range that is suffi-
cient to pay expected insured losses resulting
from a particular peril; and
(B) does not include loss adjustment ex-
pense, administrative expense, taxes, commis-
sions, risk charge, profits, and contingencies.
(15) MITIGATION
FUND.—The term ‘‘Mitiga-
tion Fund’’ means the Natural Disaster Hazard
Mitigation Fund established under section 202.
(16) PRIVATE INSURER.—The term ‘‘private in-
surer’’ means any private insurer or private rein-
surer, including all related affiliates or subsidiaries
under the same ownership or management in a man-
ner consistent with the definition of the term ‘‘affili-
ated group’’ under section 1504(a) of the Internal
Revenue Code of 1986, that is licensed or admitted
to write property and casualty insurance or reinsur-
ance within a State.
(17) PUBLIC FACILITY.—The term ‘‘public fa-
cility’’ has the meaning given the term in section
102 of the Robert T. Stafford Disaster Relief and
Emergency Assistance Act (42 U.S.C. 5122(8)).
(18) RATING
VARIABLE.—The term ‘‘rating
variable’’ means the characteristics of individual
risks that affect loss costs, including—
(A) geographic territory;
(B) type of construction;
(C) amount of insurance coverage;
(D) insurance policy deductibles; and
(E) hazard mitigation measures.
(19) RESIDENTIAL PROPERTY.—The term ‘‘res-
idential property’’ means—
(A) any family residential building that
houses not less than 1 and not more than 4
families (including mobile or manufactured
homes); and
(B) personal property of the occupants of
a residential building (including any condomin-
ium, cooperative, or apartment building).
(20) RESIDENTIAL
PROPERTY
LOSSES.—The
term ‘‘residential property losses’’ means physical
damage losses to insured residential property.
(21) RISK CHARGE.—The term ‘‘risk charge’’
means the component of an insurance rate that re-
flects the degree of variability of losses around the
mean value of the subject of the insurance.
(22) STATE.—The term ‘‘State’’ means each of
the States of the United States, the District of Co-
lumbia, the Commonwealth of Puerto Rico, the Vir-
gin Islands, Guam, American Samoa, the Common-
wealth of the Northern Mariana Islands, and any
other territory or possession of the United States.
(23) STATE
DEPARTMENT
OF
INSURANCE.—
The term ‘‘State department of insurance’’ means
the office of the chief insurance regulatory official of
a State (or the equivalent State entity).
(24) STATE
INSURANCE
POOL.—The term
‘‘State insurance pool’’ means any State-authorized
joint underwriting or joint reinsurance association,
risk pool, or residual market mechanism that pro-
vides insurance or reinsurance coverage against hur-
ricanes, 
earthquakes, 
volcanic 
eruptions, 
or
tsunamis.
(25) TSUNAMI.—The term ‘‘tsunami’’ means an
ocean wave generated by underwater disturbances in
the earth’s crust (that consist primarily of earth-
quakes and submarine volcanic eruptions).
(26) UNITED
STATES.—The term ‘‘United
States’’ means, when used in a geographical sense,
all of the States (as such term is defined in para-
graph (21)).
(27) VOLCANIC ERUPTION.—The term ‘‘volcanic
eruption’’ means the expulsion, as a result of natural
causes, of molten rock, rock fragments, gases, ashes,
mud, lava flows, and other natural substances
through an opening in the crust of the earth.
(28) WINDSTORM.—The term ‘‘windstorm’’
means an atmospheric disturbance that—
(A) is marked by high velocity movements
of air, including a tornado; and
(B) is not officially declared to be a hurri-
cane (including a typhoon, as defined in para-
graph (10)).
SEC. 5. SEVERABILITY.
If any provision of this Act, or the application of that
provision to any person, circumstance, or venue, is held
invalid, the remainder of this Act, or the application of
that provision to persons, circumstances, or venues other
than those as to which it is held invalid, shall not be af-
fected.
TITLE I—NATURAL DISASTER
INSURANCE
SEC. 101. NATIONAL COMMISSION ON CATASTROPHE RISK
AND INSURANCE LOSS COSTS.
(a) ESTABLISHMENT.—The Secretary of the Treas-
ury (in this title referred to as the ‘‘Secretary’’) shall es-
tablish within the Department of the Treasury a National
Commission on Catastrophe Risk and Insurance Loss
Costs (in this section referred to as the ‘‘Commission’’)
to estimate loss costs from catastrophic natural disasters.
(b) DUTIES.—
(1) IN GENERAL.—The Commission shall meet
periodically to participate in public hearings, esti-
mate proposed loss costs, and approve and file loss
costs under subsection (e).
(2) PLAN OF OPERATION.—Not later than 180
days after the date on which the Commission is es-
tablished, the Commission shall develop, and submit
to the Secretary for review, a plan of operation that
sets forth the specific policies and details of the op-
eration of the Commission that includes all guide-
lines, criteria, definitions and procedures that the
Commission determines to be necessary to carry out
the functions of the Commission under this section.
(c) STAFFING.—The Chairperson of the Commission
may appoint and terminate such full-time professional and
clerical staff, attorneys, examiners, and other experts as
may be necessary to enable the Commission to carry out
its duties. The staff shall be Federal employees who are
subject to the civil service laws under title 5, United States
Code.
(d) MEMBERS.—
(1) APPOINTMENT.—
(A) INITIAL APPOINTMENT.—The Commis-
sion shall be composed of 13 members ap-
pointed by the Secretary not later than 90 days
after the date of enactment of this Act.
(B) VACANCIES.—A vacancy on the Com-
mission shall be filled in the manner in which
the original appointment was made and shall be
subject to any conditions which applied with re-
spect to the original appointment. The Sec-
retary shall ensure that the composition of the
Commission meets at all times the qualifica-
tions described in paragraph (2).
(2) QUALIFICATIONS.—
(A) IN GENERAL.—
(i) CITIZENSHIP
AND
EXPERTISE.—
Each member appointed to the Commis-
sion shall be—
(I) a citizen of the United States;
and
(II) recognized as qualified in a
field related to natural disaster haz-
ard mitigation and insurance.
(ii) TREATMENT
OF
NON-FEDERAL
MEMBERS.—Each member who is not oth-
erwise employed by the Federal Govern-
ment shall be deemed to be special govern-
ment employees, as defined in section 202
of title 18, United States Code, for pur-
poses of sections 201, 202, 203, 205, and
208 of such title.
(B) SPECIFIC DISCIPLINES.—The members
appointed to the Commission described in para-
graph (1) shall consist of the following:
(i) 1 structural engineer, who shall
not otherwise be an employee of the Fed-
eral Government, or an employee of a
State government or a private insurer.
(ii) 1 meteorologist, who shall not oth-
erwise be an employee of the Federal Gov-
ernment, or an employee of a State govern-
ment or a private insurer.
(iii) 1 seismologist, who shall not oth-
erwise be an employee of the Federal Gov-
ernment or an employee of a State govern-
ment or a private insurer.
(iv) 2 professional actuaries who have
previous experience in developing or setting
actuarially sound property and casualty
rates who shall not otherwise be employed
by the Federal Government, or employed
by a State government or private insurer.
(v) 2 members who each serve as an
elected regulator of a department of insur-
ance of a State.
(vi) 1 member who is otherwise em-
ployed by the Department of the Treasury.
(vii) 1 member who is an employee of
the 
Federal 
Emergency 
Management
Agency.
(viii) 1 member who is a private in-
surer.
(ix) 1 representative from the consum-
ers of property and casualty insurance.
(x) 1 representative who is a real es-
tate agent.
(x) 1 representative who is a profes-
sional builder.
(C) EFFECTS
OF
LOSS
OF
QUALIFICA-
TION.—If any member appointed under para-
graph (1) ceases to meet the applicable quali-
fications under this paragraph, the term of that
member shall terminate, and the Secretary shall
fill the vacancy immediately upon that termi-
nation.
(3) CHAIRPERSON.—The Secretary shall des-
ignate a chairperson of the Commission from among
members appointed to the Commission.
(4) TERMS OF SERVICE.—
(A) IN
GENERAL.—The members ap-
pointed under paragraph (1) shall serve stag-
gered 6-year terms, as determined by the Sec-
retary at the time of appointment.
(B) REAPPOINTMENT.—
(i) IN
GENERAL.—Subject to para-
graph (2), upon the termination of the
term of a member, the Secretary may ap-
point that member to serve for an addi-
tional term.
(ii) LIMITATION.—No member may
serve as a member of the Commission for
an aggregate period longer than 12 years.
(5) COMPENSATION OF MEMBERS.—Each mem-
ber of the Commission who is not an officer or em-
ployee of the Federal Government shall be com-
pensated at a rate equal to the daily equivalent of
the annual rate of basic pay prescribed for level V
of the Executive Schedule under section 5316 of title
5, United States Code, for each day (including travel
time) during which such member is engaged 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 com-
pensation in addition to that received for their serv-
ices as officers or employees of the United States.
(6) TRAVEL EXPENSES.—The members of the
Commission shall be allowed travel expenses, includ-
ing per diem in lieu of subsistence, at rates author-
ized for employees of agencies under subchapter I of
chapter 57 of title 5, United States Code, while
away from their homes or regular places of business
in the performance of services for the Commission.
(e) FUNCTIONS.—
(1) CATASTROPHE LOSS COST ESTIMATES.—
(A) IN GENERAL.—In accordance with the
process described under subsection (f), the
Commission shall make an initial estimate of
catastrophe loss costs, and update that estimate
at not less frequently than once every 3 years
(or more frequently as appropriate).
(B) RATING
VARIABLES.—In making an
estimate under this paragraph, the Commission
shall use appropriate rating variables for the
base insurance policy commonly used in each
State or relevant jurisdiction, as determined by
the Commission, for the perils of earthquakes,
hurricanes, tsunamis, and volcanic eruptions
for—
(i) insured residential property expo-
sures; and
(ii) all class-rated insured commercial
property exposures and, if practical, other
insured commercial property exposures.
(2) FILE
LOSS
COSTS.—As soon as is prac-
ticable, but not later than 26 months after the date
of enactment of this Act, and at least every 3 years
thereafter, the Commission shall file the estimates of
catastrophe loss costs developed under this sub-
section for the perils described in paragraph (1)
with—
(A) each State department of insurance;
and
(B) the Secretary.
(3) DATA COLLECTION.—
(A) SOURCES OF DATA.—
(i) IN
GENERAL.—The Commission
may request from the entities under clause
(ii) such data or information as may be
necessary to carry out the purposes of this
section.
(ii) ENTITIES.—An entity from which
the Commission may procure information
under this subparagraph is—
(I) a statistical agent or organi-
zation designated by a State depart-
ment of insurance or a designated sta-
tistical agent of a State department of
insurance to gather and compile in-
surance statistical experience; or
(II) a private insurer if the pri-
vate insurer provides the data or in-
formation on a voluntary basis.
(B) CONFIDENTIAL.—Any data that is
company-specific for a private insurer and that
is reported to the Commission, either directly
through a State department of insurance or
through a designated statistical agent of a
State department of insurance—
(i) shall be presumed to be confiden-
tial, trade secret information; and
(ii) may not be disclosed to any other
party.
(C) RESTRICTIONS ON USE.—The Commis-
sion may only use the data and information ob-
tained under this paragraph to carry out the
duties of the Commission under this section.
The Commission may not—
(i) make confidential information de-
scribed in subparagraph (B) available to
any Federal agency or State department or
agency for any purpose; and
(ii) use confidential information de-
scribed in subparagraph (B) for any pur-
pose other than a purpose specified in this
paragraph.
(4) CONDUCT OF SPECIAL STUDIES.—The Com-
mission shall conduct special studies of catastrophe
insurance issues in order to develop estimates of ca-
tastrophe loss costs in accordance with paragraph
(1). The studies conducted under this paragraph
shall include an investigation of the following issues:
(A) The potential variability in mean loss
costs and probable maximum losses in each
State.
(B) The potential effect of various hazard
mitigation strategies on loss costs.
(C) The potential effect of demographic
changes, such as population trends, on loss
costs.
(D) The potential effect of climatic cycles
on loss costs.
(E) The uninsured catastrophe losses that
are likely to occur, including losses to public fa-
cilities and lifelines.
(f) PROCESS FOR DEVELOPMENT OF ESTIMATES OF
CATASTROPHE LOSS COSTS.—The Commission shall de-
velop the estimates of catastrophe loss costs under sub-
section (e)(1) in accordance with the following process:
(1) INVESTIGATION.—In consultation with the
experts referred to in subsection (g), the Commis-
sion shall conduct an investigation to determine the
appropriate range of loss costs estimates. In con-
ducting that investigation the Commission shall hold
public hearings.
(2) PROPOSED LOSS COSTS.—Based on the in-
vestigation under paragraph (1), the Commission
shall propose initial estimates of catastrophe loss
costs not later than 18 months after the date of en-
actment of this Act. In developing proposed esti-
mates of catastrophe loss costs and any updates of
such estimates under this section, the Commission
shall be subject to the public comment and hearings
requirements under subchapter II of chapter 5 and
chapter 7 of title 5, United States Code.
(3) 
MODIFICATION
OF
PROPOSED
LOSS
COSTS.—Upon receipt of public comments solicited
by the Commission in accordance with this section,
the Commission may modify a proposed estimate re-
ferred to in paragraph (2) to take into account those
comments.
(4) FINALIZATION
OF
INITIAL
ESTIMATES.—
The initial estimates of catastrophe loss costs devel-
oped by the Commission under this subsection shall
become final not later than 22 months after the date
of enactment of this Act. Any updates of catastrophe
loss costs estimates shall become final upon the com-
pletion of the process described in paragraphs (1)
through (3) for such updates.
(5) APPEAL.—
(A) RIGHT.—Not later than 30 days after
the finalization of an estimate of catastrophe
loss costs under paragraph (4), any individual,
organization, private insurer, State insurance
pool, or State department of insurance ad-
versely affected or aggrieved by such estimate
may appeal the estimate in writing to the Com-
mission.
(B) PROCESS.—
(i) IN
GENERAL.—The Commission
shall hear any appeal brought under sub-
paragraph (A) on the record or in a public
proceeding not later than 30 days after the
appeal is submitted.
(ii) DETERMINATION
BY
COMMIS-
SION.—Not later than 90 days after the
date on which an appeal is submitted
under subparagraph (A), the Commission
shall make a determination on the appeal,
and make any necessary changes to the es-
timate of catastrophe loss costs involved.
(6) METHODOLOGIES.—At the same time as
the Commission issues proposed estimates of catas-
trophe loss costs under paragraph (2) and the final
estimates of catastrophe loss costs under paragraph
(4) the Commission shall issue a report prepared by
the Commission concerning the methodologies and
assumptions used in developing the estimates of ca-
tastrophe loss costs.
(7) JUDICIAL REVIEW.—Except as provided in
subsection (j), any action taken, or determination
made, by the Commission in connection with devel-
oping or filing catastrophe loss costs estimates under
this section shall not be subject to judicial review.
(g) CONSULTATION.—The Commission shall consult
experts in the following fields, or employed by the follow-
ing entities, to assist in the investigation of natural disas-
ter catastrophe loss costs estimates:
(1) The property and casualty industry.
(2) Natural disaster catastrophe modeling orga-
nizations.
(3) Consumers of property and casualty insur-
ance.
(4)(A) Scientific agencies of the Federal Gov-
ernment, such as the United States Geological Sur-
vey of the Department of the Interior and the Na-
tional Oceanic and Atmospheric Administration, the
National Hurricane Center, and the Bureau of the
Census of the Department of Commerce; and
(B) The National Academy of Sciences.
(5) State departments of insurance.
(6) Other appropriate experts in the area of
natural disaster catastrophe loss costs.
(h) USE
OF ESTIMATES
OF CATASTROPHE LOSS
COSTS.—
(1) PRIVATE INSURERS.—
(A) ELECTION.—For the natural disaster
perils listed in subsection (e)(1), a private in-
surer may elect to cite the final estimates of ca-
tastrophe loss costs determined under sub-
section (f) in the rate filings of the private in-
surer to the appropriate State department of
insurance.
(B) DISAPPROVAL.—If a private insurer
chooses to cite the loss costs estimates under
subparagraph (A), the appropriate State de-
partment of insurance—
(i) shall consider those loss costs esti-
mates as authoritative; and
(ii) may not disapprove the catas-
trophe loss costs component of the prop-
erty insurance rate filing submitted by the
private insurer for the perils described in
subsection (e)(1) unless the chief insurance
regulatory official of the State finds, not
later than 30 days after the date the rate
filing is submitted by the private insurer,
that the estimates of catastrophe loss costs
are excessive, inadequate, or unfairly dis-
criminatory.
(C) DEVIATIONS.—Nothing in this para-
graph shall preclude a State department of in-
surance from evaluating, in a manner consistent
with applicable State law, rate filings submitted
by a private insurer electing to cite the loss
costs estimates under subparagraph (A) if the
private insurer deviates from the rating vari-
ables or base insurance policy used under sub-
section (e)(1) by the Commission in estimating
the loss costs.
(2) CONSIDERATION OF ESTIMATES OF CATAS-
TROPHE LOSS COSTS BY SECRETARY OF THE TREAS-
URY.—The Secretary of the Treasury shall, to the
maximum extent practicable, consider estimates of
catastrophe loss costs filed with the Secretary under
subsection (e)(2) in developing the reserve prices for
the Federal excess-of-loss reinsurance contracts
under section 102.
(3) STATE INSURANCE POOLS.—In order to be
eligible to purchase the Federal excess-of-loss rein-
surance contracts under section 102 directly from
the Treasury Department or through a private cor-
poration described in section 103, a State insurance
pool that provides direct insurance shall, to the max-
imum extent practicable, consider the estimates of
catastrophe loss costs as the minimum loss costs to
be filed with the State departments of insurance
under subsection (e)(2) in developing the rates for
property insurance coverage they provide.
(i) STANDARDS.—The estimates of catastrophe loss
costs developed under this section shall—
(1) reflect actuarial principles of basing rates
on the risk to insured property from natural disaster
perils by—
(A) minimizing cost-subsidization of the
loss costs between geographic risk territories
and different construction types for buildings;
and
(B) ensuring that the estimated catas-
trophe loss costs are sufficient to cover expected
losses; and
(2) produce insurance rates that are not exces-
sive, inadequate, or unfairly discriminatory.
(j) JUDICIAL REVIEW.—If the chief insurance regu-
latory official of a State disapproves final estimates for
catastrophe loss costs under subsection (h)(1)(B), the par-
ties described in subsection (f)(5)(A) may seek judicial re-
view in the district court of the United States with appro-
priate jurisdiction. The scope of review shall be determined
in accordance with chapter 7 of title 5, United States
Code.
(k) CATASTROPHE LOSS COSTS MODELS.—
(1) CERTIFICATION.—If after following the
processes of subsections (f)(1) and (g), the Commis-
sion concludes that developing estimates of catas-
trophe loss costs according to subsection (e)(1) is
impractical, the Commission may review and certify,
if appropriate, private commercial natural disaster
hazard models intended to be used to make esti-
mates of catastrophe loss costs.
(2) USE.—
(A) ELECTION.—Subject to the applicable
conditions under subsection (h)(1), a private in-
surer may elect to cite the catastrophe loss
costs models certified by the Commission under
paragraph (1) in rate filings to the State de-
partment of insurance for the natural disaster
perils described in subsection (e)(1).
(B) RATES.—In any case in which a pri-
vate insurer chooses to cite the catastrophe loss
costs models under subparagraph (A), the chief
insurance regulatory official of the State shall
approve or disapprove the rate filing in accord-
ance with subparagraphs (B) and (C) of sub-
section (h)(1).
(3) APPEAL.—
(A) IN GENERAL.—A certification of mod-
els for estimating catastrophe loss costs under
paragraph (1) shall be subject to appeal in the
same manner as is provided for an appeal of es-
timates of catastrophe loss costs under sub-
section (f)(5).
(B) JUDICIAL REVIEW.—A certification of
catastrophe loss cost models under paragraph
(1) shall be subject to judicial review in the
same manner as is provided for a review of esti-
mates of loss costs under subsection (j).
(4) REVIEW.—The Commission shall make
available for public review the models for estimating
catastrophe loss costs certified under paragraph (1).
(l) OVERSIGHT.—The Secretary shall oversee, and
may audit the activities of the Commission to ensure the
Commission carries out its duties in a manner consistent
with this section. The Secretary shall periodically submit
to the Congress a written report on the performance of
the Commission in carrying out this section.
(m) EXEMPTION.—The Federal Advisory Committee
Act (5 U.S.C. App.) shall not apply to the Commission.
(n) AUTHORIZATION OF APPROPRIATIONS.—
(1) IN GENERAL.—There are authorized to be
appropriated to the Department of the Treasury—
(A) $5,000,000 for the initial expenses in
establishing the Commission, and the initial ac-
tivities 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.—Sums authorized to be appro-
priated under paragraph (1)(B) shall be offset, to
the maximum extent practicable, through a sur-
charge assessed by the Secretary on the catastrophic
excess-of-loss contracts described in section 102.
(3) TREATMENT OF SPENDING AUTHORITY.—
Any spending authority authorized by this section
shall be effective only to such extent, and in such
amounts, as are provided in appropriation Acts.
(o) INTENT OF CONGRESS.—It is the intent of Con-
gress that—
(1) the provisions of this section relate specifi-
cally to the business of insurance; and
(2) except as provided in subsection (h)(1)(B),
all activities prescribed by this section applicable to
the business of insurance shall be regulated by State
law.
SEC. 102. CATASTROPHIC EXCESS-OF-LOSS CONTRACTS.
(a) GENERAL AUTHORITY.—
(1) CONTRACTS DEFINED.—As used in this sec-
tion, the term ‘‘contract’’ means a Federal excess-of-
loss reinsurance contract issued pursuant to this sec-
tion.
(2) AUCTIONING
OF
CONTRACTS.—The Sec-
retary shall carry out a program to auction Federal
excess-of-loss reinsurance contracts to eligible pur-
chasers for the purpose of increasing the capacity of
insurance coverage against the catastrophic natural
disaster perils listed in subsection (d).
(b) QUALIFIED PURCHASERS.—Any of the following
entities shall be qualified to purchase contracts under this
section, if the entity provides insurance or reinsurance for
property located within a State:
(1) A private insurer.
(2) A State insurance pool.
(c) QUALIFIED LINES OF COVERAGE.—
(1) MANDATORY
LINES.—The contracts auc-
tioned by the Secretary under this section shall pro-
vide insurance coverage against the following losses:
(A) Residential property losses.
(B) Commercial losses, except for workers’
compensation and liability.
(2) DISCRETIONARY
INCLUSION.—The Sec-
retary is authorized to include additional lines of in-
surance that are not listed under paragraph (1) as
qualified property and casualty lines of coverage for
the contracts auctioned by the Secretary under this
section.
(d) COVERED PERILS.—The contracts auctioned by
the Secretary under this section shall cover losses that are
proximately caused by the following natural disaster perils
(as defined by the Secretary):
(1) Earthquakes.
(2) Volcanic eruptions.
(3) Tsunamis.
(4) Hurricanes.
(e) CONTRACT TERMS AND CONDITIONS.—The Sec-
retary shall include the following terms and conditions in
the contracts auctioned under this section:
(1) MATURITY.—The maturity period for each
such contract shall not exceed 1 year.
(2) MULTIPLE
EVENTS.—The Secretary may
offer contracts that cover more than 1 natural disas-
ter occurring during a 12-month period, on the con-
dition that disasters occurring after the first event
may be subject to a different threshold than the
threshold under paragraph (5).
(3) TRANSFERABILITY.—Each such contract
shall at all times be fully transferable and divisible.
(4) PAYMENT CONDITION.—Each such contract
shall only authorize payments to a qualified pur-
chaser described in subsection (b) that actually sus-
tains natural disaster losses. No qualified purchaser
may exercise a cumulated total of contracts that ex-
ceed actual losses sustained by such entity.
(5) THRESHOLD OF COVERAGE.—The holder of
a contract auctioned by the Secretary under this sec-
tion may receive a payment for losses covered under
the contract if, under a process specified in the con-
tract, the Secretary determines that the insurance
industry within the United States will, as a result of
a hurricane, earthquake, volcanic eruption, or tsu-
nami event involved, incur losses covered by one or
more lines of insurance under subsection (c) in an
aggregate amount greater than $10,000,000,000.
(6) PAYOUT PERIOD.—Each contract auctioned
by the Secretary under this subsection shall limit
payments for natural disaster claims paid by the
holder of the contract for a 3-year period, beginning
on the date of the natural disaster event that meets
the threshold specified in paragraph (5).
(7) PAYOUT FUNCTION.—If the Secretary de-
termines that the threshold specified in paragraph
(5) will be met, the Secretary shall pay out claims
to contract holders at a ratio determined by the Sec-
retary.
(f) SALE OF CONTRACTS.—
(1) ANNUAL
AUCTION.—The Secretary shall
auction contracts under this section not less fre-
quently than annually.
(2) TYPES OF CONTRACTS.—
(A) CATEGORIES
OF
PERILS.—The Sec-
retary shall offer contracts for sale that cover
the following categories of perils:
(i) Earthquakes, volcanic eruptions,
and tsunamis.
(ii) Hurricanes.
(iii) A combination of the categories
under clauses (i) and (ii).
(B) MULTISTATE CONTRACTS.—The Sec-
retary may offer contracts for sale covering
losses sustained in one or more States or all
States.
(3) RESERVE PRICE.—In auctioning a contract
under this section, the Secretary shall set a reserve
price as the lowest base price for that contract. The
reserve price shall be determined on the basis of the
following:
(A) A risk-based price, that shall—
(i) reflect the anticipated payouts of
the contract; and
(ii) be consistent, to the maximum ex-
tent practicable, with the loss costs esti-
mates as provided in section 101(h)(2).
(B) A cost-of-capital adjustment that shall
reflect the marginal difference in the cost to the
Federal Government for borrowing money, as
compared to the cost to private insurers for
borrowing money in the private marketplace.
(C) Adjustments for—
(i) a surcharge for the operation of
the National Commission on Catastrophe
Risk and Insurance Loss Costs to offset
costs of the operation of the Commission
after the initial funds authorized to be ap-
propriated under section 101(n)(1) have
been expended;
(ii) the anticipated contribution to the
Mitigation Fund as provided in section
202(b); and
(iii) the administrative expenses in-
curred by the Secretary in carrying out
this section.
(4) LIMITS ON NUMBER OF CONTRACTS.—
(A) MINIMUM NUMBER OF CONTRACTS.—
(i) IN GENERAL.—Except as provided
under clause (ii), the Secretary shall auc-
tion annually not less than 25 percent of
the maximum number of contracts that the
Secretary may make available under this
section.
(ii) EXCEPTION.—Clause (i) shall
apply subject to the availability of qualified
purchasers that are prepared to pay not
less than the price described in paragraph
(3) for a contract.
(B) ADDITIONAL CONTRACTS.—In addition
to auctioning the minimum amount of contracts
under subparagraph (A), the Secretary shall
auction additional contracts in relation to, as
determined by the Secretary, any bids received
during the auction for the immediately preced-
ing fiscal year for the contracts that exceed the
reserve price described in paragraph (3).
(C) MAXIMUM NUMBER OF CONTRACTS.—
The total payout for all contracts auctioned on
the basis of the payout function determined by
the Secretary under subsection (e)(7) shall not
exceed $25,000,000,000.
(g) INFLATION ADJUSTMENT.—Beginning with cal-
endar year 1998, the Secretary may adjust the dollar
amounts specified in subsections (e)(5) and (f)(4)(C) by
the applicable percentage change in the value of property
exposed to the natural disaster perils described in sub-
section (d).
(h) TRUST FUND.—
(1) ESTABLISHMENT.—There is established
within the Treasury of the United States a trust
fund to be known as the Federal Excess-of-Loss Re-
insurance Fund (hereafter in this section referred to
as the ‘‘Trust Fund’’) consisting of such amounts as
are transferred to this fund under paragraph (2)
and any interest earned on investment accounts in
the fund under paragraph (3)(A).
(2) TRANSFER OF PROCEEDS OF AUCTION.—
The Secretary of the Treasury shall transfer to the
Trust Fund an amount equal to the amounts re-
ceived from an auction conducted under section 102.
(3) INVESTMENT OF TRUST FUND.—
(A) IN GENERAL.—It shall be the duty of
the Secretary of the Treasury to invest such
portion of the Trust Fund as is not, in the Sec-
retary’s judgment, required to meet current
withdrawals. Such investments may be made
only in interest-bearing obligations of the Unit-
ed States or in obligations guaranteed as to
both principal and interest by the United
States. For such purpose, such obligations may
be acquired—
(i) on original issue at the issue price,
or
(ii) by purchase of outstanding obliga-
tions at the market price.
(B) SALE OF OBLIGATIONS.—Any obliga-
tion acquired by the Trust Fund may be sold
by the Secretary of the Treasury at the market
price.
(2) PRIORITY.—Each State that receives an al-
lotment under subsection (d) shall give priority in
using the amounts received from the Mitigation
Fund to fund hazard mitigation activities necessary
to bring the State into compliance with the statewide
strategic mitigation plan developed by the State
under section 201, including the elements under sec-
tion 201(b).
(f) LOCAL COMMUNITIES.—As a condition to receiv-
ing an initial allotment under subsection (d), each state-
wide strategic mitigation plan shall be—
(1) developed or designated in consultation with
the parties described in section 201(a); and
(2) based on the criteria and priorities de-
scribed in section 201(b)(1).
(g) STATE PERFORMANCE.—
(1) EVALUATION.—The Director shall evaluate
not later than 3 years after approving a statewide
strategic management plan under section 201 and
not less frequently than every 3 years thereafter, the
progress of each State with respect to the implemen-
tation of a statewide strategic mitigation plan under
section 201, including the implementation of the
processes under section 201(b).