I
106TH CONGRESS
1ST SESSION
H. R. 2749
To amend the Internal Revenue Code of 1986 to provide for the creation
of disaster protection funds by property and casualty insurance compa-
nies for the payment of policyholders’ claims arising from future cata-
strophic events.
IN THE HOUSE OF REPRESENTATIVES
AUGUST 5, 1999
Mr. FOLEY (for himself, Mr. MATSUI, Mr. HILL of Montana, Mr. ROYCE, Mr.
GONZALEZ, Mr. TANNER, Mr. HERGER, Mr. PORTMAN, Mr. HULSHOF,
Mr. HOUGHTON, Mr. BOEHNER, Mrs. MEEK of Florida, Mr. PAUL, Mr.
LATOURETTE, Mr. HINCHEY, Mr. LEWIS of California, Mr. DREIER, Mr.
BONILLA, and Mr. CHABOT) introduced the following bill; which was re-
ferred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide
for the creation of disaster protection funds by property
and casualty insurance companies for the payment of
policyholders’ claims arising from future catastrophic
events.
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 ‘‘Policyholder Disaster
Protection Act of 1999’’.
SEC. 2. FINDINGS.
The Congress makes the following findings:
(1) Rising costs resulting from natural disasters
are placing an increasing strain on the ability of
property and casualty insurance companies to assure
payment of homeowners’ claims and other insurance
claims arising from major natural disasters now and
in the future.
(2) Present tax laws do not provide adequate
incentives to assure that natural disaster insurance
is provided or, where such insurance is provided,
that funds are available for payment of insurance
claims in the event of future catastrophic losses from
major natural disasters, as present law requires an
insurer wishing to accumulate surplus assets for this
purpose to do so entirely from its after-tax retained
earnings.
(3) Revising the tax laws applicable to the prop-
erty and casualty insurance industry to permit care-
fully controlled accumulation of pretax dollars in
separate reserve funds devoted solely to the payment
of claims arising from future major natural disasters
will provide incentives for property and casualty in-
surers to make natural disaster insurance available,
will give greater protection to the Nation’s home-
owners, small businesses, and other insurance con-
sumers, and will help assure the future financial
health of the Nation’s insurance system as a whole.
(4) Implementing these changes will reduce the
possibility that a significant portion of the private
insurance system would fail in the wake of a major
natural disaster and that governmental entities
would be required to step in to provide relief at tax-
payer expense.
SEC. 3. CREATION OF POLICYHOLDER DISASTER PROTEC-
TION FUNDS; CONTRIBUTIONS TO AND DIS-
TRIBUTIONS FROM FUNDS; OTHER RULES.
(a) CONTRIBUTIONS TO POLICYHOLDER DISASTER
PROTECTION FUNDS.—Subsection (c) of section 832 of
the Internal Revenue Code of 1986 (relating to the taxable
income of insurance companies other than life insurance
companies) is amended by striking ‘‘and’’ at the end of
paragraph (12), by striking the period at the end of para-
graph (13) and inserting in lieu thereof ‘‘; and’’, and by
adding at the end the following new paragraph:
‘‘(14) the qualified contributions to a policy-
holder disaster protection fund during the taxable
year.’’.
(b) DISTRIBUTIONS FROM POLICYHOLDER DISASTER
PROTECTION FUNDS.—Paragraph (1) of section 832(b) of
such Code is amended by striking ‘‘and’’ at the end of
subparagraph (D), by striking the period at the end of
subparagraph (E) and inserting in lieu thereof ‘‘, and’’,
and by adding at the end the following new subparagraph:
‘‘(F) the amount of any distributions from
a policyholder disaster protection fund during
the taxable year, except that a distribution
made to return to the qualified insurance com-
pany any contribution which is not a qualified
contribution (as defined in subsection (h)) for a
taxable year shall not be included in gross in-
come if such distribution is made prior to the
filing of the tax return for such taxable year.’’.
(c) DEFINITIONS AND OTHER RULES RELATING TO
POLICYHOLDER DISASTER PROTECTION FUNDS.—Section
832 of such Code (relating to insurance company taxable
income) is amended by adding at the end the following
new subsection:
‘‘(h) DEFINITIONS AND OTHER RULES RELATING TO
POLICYHOLDER DISASTER PROTECTION FUNDS.—For
purposes of subsections (b)(1)(F) and (c)(14)—
‘‘(1) POLICYHOLDER
DISASTER
PROTECTION
FUND.—The term ‘policyholder disaster protection
fund’ (hereafter in this subsection referred to as the
‘fund’) means any custodial account, trust, or any
other arrangement or account—
‘‘(A) which is established to hold assets
that are set aside solely for the payment of
qualified losses, and
‘‘(B) under the terms of which—
‘‘(i) the assets in the fund are re-
quired to be invested in a manner con-
sistent with the investment requirements
applicable to the qualified insurance com-
pany under the laws of its jurisdiction of
domicile,
‘‘(ii) the net income for the taxable
year derived from the assets in the fund is
required to be distributed no less fre-
quently than annually,
‘‘(iii) an excess balance drawdown
amount is required to be distributed to the
qualified insurance company no later than
the close of the taxable year following the
taxable year for which such amount is de-
termined,
‘‘(iv) a catastrophe drawdown amount
may be distributed to the qualified insur-
ance company if distributed prior to the
close of the taxable year following the year
for which such amount is determined,
‘‘(v) a State required drawdown
amount may be distributed, and
‘‘(vi) no distributions from the fund
are required or permitted other than the
distributions described in clauses (ii)
through (v) and the return to the qualified
insurance company of contributions that
are not qualified contributions.
‘‘(2) QUALIFIED
INSURANCE
COMPANY.—The
term ‘qualified insurance company’ means any insur-
ance company subject to tax under section 831(a).
‘‘(3) QUALIFIED
CONTRIBUTION.—The term
‘qualified contribution’ means a contribution to a
fund for a taxable year to the extent that the
amount of such contribution, when added to the pre-
vious contributions to the fund for such taxable
year, does not exceed the excess of—
‘‘(A) the fund cap for the taxable year,
over
‘‘(B) the fund balance determined as of the
close of the preceding taxable year.
‘‘(4) 
EXCESS
BALANCE
DRAWDOWN
AMOUNTS.—The term ‘excess balance drawdown
amount’ means the excess (if any) of—
‘‘(A) the fund balance as of the close of
the taxable year, over
‘‘(B) the fund cap for the following taxable
year.
‘‘(5) CATASTROPHE DRAWDOWN AMOUNT.—
‘‘(A) IN GENERAL.—The term ‘catastrophe
drawdown amount’ means an amount that does
not exceed the lesser of the amount determined
under subparagraph (B) or (C).
‘‘(B) NET
LOSSES
FROM
QUALIFYING
EVENTS.—The amount determined under this
subparagraph shall be equal to the qualified
losses for the taxable year determined without
regard to clause (ii) of paragraph (8)(A).
‘‘(C) GROSS
LOSSES
IN
EXCESS
OF
THRESHOLD.—The amount determined under
this subparagraph shall be equal to the excess
(if any) of—
‘‘(i) the qualified losses for the taxable
year, over
‘‘(ii) the lesser of—
‘‘(I) the fund cap for the taxable
year (determined without regard to
paragraph (9)(E)), or
‘‘(II) 30 percent of the qualified
insurance company’s surplus as re-
gards policyholders as shown on the
company’s annual statement for the
calendar year preceding the taxable
year.
‘‘(D) SPECIAL DRAWDOWN AMOUNT FOL-
LOWING
A
RECENT
CATASTROPHE
LOSS
YEAR.—If for any taxable year included in the
reference period the qualified losses exceed the
amount determined under subparagraph (C)(ii),
the ‘catastrophe drawdown amount’ shall be an
amount that does not exceed the lesser of the
amount determined under subparagraph (B) or
the amount determined under this subpara-
graph. The amount determined under this sub-
paragraph shall be an amount equal to the ex-
cess (if any) of—
‘‘(i) the qualified losses for the taxable
year, over
‘‘(ii) the lesser of—
‘‘(I) 1⁄3 of the fund cap for the
taxable year (determined without re-
gard to paragraph (9)(E)), or
‘‘(II) 10 percent of the qualified
insurance company’s surplus as re-
gards policyholders as shown on the
company’s annual statement for the
calendar year preceding the taxable
year.
‘‘(E) REFERENCE PERIOD.—For purposes
of subparagraph (D), the reference period shall
be determined under the following table:
‘‘For a taxable year
The reference period
beginning in—
shall be—
2003 and later .......................
The 3 preceding taxable years.
2002 .......................................
The 2 preceding taxable years.
2001 .......................................
The preceding taxable year.
2000 or before .......................
No reference period applies.
‘‘(6) STATE REQUIRED DRAWDOWN AMOUNT.—
The term ‘State required drawdown amount’ means
any amount that the department of insurance for
the qualified insurance company’s jurisdiction of
domicile requires to be distributed from the fund, to
the extent such amount is not otherwise described in
paragraph (4) or (5).
‘‘(7) FUND BALANCE.—The term ‘fund balance’
means—
‘‘(A) the sum of all qualified contributions
to the fund,
‘‘(B) less any net investment loss of the
fund for any taxable year or years, and
‘‘(C) less the sum of all distributions under
clauses (iii) through (v) of paragraph (1)(B).
‘‘(8) QUALIFIED LOSSES.—
‘‘(A) IN
GENERAL.—The term ‘qualified
losses’ means, with respect to a taxable year—
‘‘(i) the amount of losses and loss ad-
justment expenses incurred in the qualified
lines of business specified in paragraph
(9), net of reinsurance, as reported in the
qualified 
insurance 
company’s 
annual
statement for the taxable year, that are at-
tributable to one or more qualifying events
(regardless of when such qualifying events
occurred),
‘‘(ii) the amount by which such losses
and loss adjustment expenses attributable
to such qualifying events have been re-
duced for reinsurance received and recover-
able, plus
‘‘(iii) any nonrecoverable assessments,
surcharges, or other liabilities that are
borne by the qualified insurance company
and are attributable to such qualifying
events.