IB
Union Calendar No. 389
105TH CONGRESS
2D SESSION
H. R. 219
[Report No. 105–687]
To establish a Federal program to provide reinsurance for State disaster
insurance programs.
IN THE HOUSE OF REPRESENTATIVES
JANUARY 7, 1997
Mr. LAZIO of New York (for himself, Mr. FAZIO of California, and Mr.
MCCOLLUM) introduced the following bill; which was referred to the Com-
mittee on Banking and Financial Services
AUGUST 7, 1998
Additional sponsors: Mr. SOLOMON, Mr. CASTLE, Mr. ACKERMAN, Mr. FOX
of Pennsylvania, Mr. CAMPBELL, Mr. CHRISTENSEN, Mr. FATTAH, Ms.
LOFGREN, Mr. BILBRAY, Ms. CHRISTIAN-GREEN, Mr. DAVIS of Virginia,
Mr. ENSIGN, Mr. MATSUI, Mr. FRANKS of New Jersey, Mr. JONES, Mr.
DOOLEY of California, Mr. WEXLER, Mr. FRELINGHUYSEN, Mr. RADAN-
OVICH, Mr. JOHN, Mr. FROST, Mr. GEJDENSON, Mr. WATKINS, Mr.
DELAHUNT, Mr. BUNNING, Ms. ESHOO, Ms. NORTON, Mr. COMBEST,
Mr. FILNER, Mr. YOUNG of Alaska, Mr. KNOLLENBERG, Mr. LOBIONDO,
Mrs. MEEK of Florida, Mr. PRICE of North Carolina, Mr. CANADY of
Florida, Mr. METCALF, Mrs. EMERSON, Mr. CUNNINGHAM, Mr. AN-
DREWS, Mr. SHERMAN, Mr. WELDON of Florida, Mr. DICKEY, and Mr.
BERMAN
Deleted sponsor: Ms. KILPATRICK (added May 22, 1997; deleted July 15,
1998)
AUGUST 7, 1998
Reported with an amendment, committed to the Committee of the Whole
House on the State of the Union, and ordered to be printed
[Strike out all after the enacting clause and insert the part printed in italic]
[For text of introduced bill, see copy of bill as introduced on January 7, 1997]
A BILL
To establish a Federal program to provide reinsurance for
State disaster insurance programs.
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 ‘‘Homeowners’ Insurance
Availability Act of 1998’’.
SEC. 2. CONGRESSIONAL FINDINGS.
The Congress finds that—
(1) the rising costs resulting from natural disas-
ters have placed a strain on homeowners’ insurance
markets in many areas, jeopardizing the ability of
many consumers to adequately insure their homes
and possessions;
(2) the lack of sufficient insurance capacity
threatens to increase the number of uninsured home-
owners, which, in turn, increases the risk of mortgage
defaults and the strain on the Nation’s banking sys-
tem;
(3) some States have intervened to ensure the
continued availability of homeowners’ insurance for
all residents;
(4) it is appropriate that efforts to improve in-
surance availability be designed and implemented at
the State level;
(5) while State insurance programs may be ade-
quate to cover losses from most natural disasters, a
small percentage of events are likely to exceed the fi-
nancial capacity of these programs and the local in-
surance markets;
(6) limited Federal reinsurance will improve the
effectiveness of State insurance programs and private
insurance markets and will increase the likelihood
that homeowners’ insurance claims will be fully paid
in the event of a large natural catastrophe;
(7) it is necessary to provide, on a temporary
basis, a Federal reinsurance program that will pro-
mote stability in the homeowners’ insurance market
in the short run and encourage the growth of reinsur-
ance capacity by the private and capital markets as
soon as practical;
(8) such Federal reinsurance program should not
remain in existence longer than necessary for the pri-
vate entities or the capital markets, or both, to pro-
vide adequate reinsurance capacity to address the
current homeowners’ insurance market dislocations
caused by various disasters; and
(9) any Federal reinsurance program must be
founded upon sound actuarial principles and priced
in a manner that minimizes the potential impact on
the Treasury.
SEC. 3. PROGRAM AUTHORITY.
(a) IN GENERAL.—The Secretary of the Treasury shall
carry out a program under this Act to make reinsurance
coverage available through—
(1) contracts for reinsurance coverage under sec-
tion 6, which shall be made available for purchase
only by eligible State programs; and
(2) contracts for reinsurance coverage under sec-
tion 7, which shall be made available for purchase by
purchasers under section 7(a)(1) only through auc-
tions under section 7(a).
(b) PURPOSE.—The program shall be designed to make
reinsurance coverage under this Act available to improve
the availability of homeowners’ insurance for the purpose
of facilitating the pooling, and spreading the risk, of cata-
strophic financial losses from natural 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 con-
tracts—
(1) shall not displace or compete with the private
insurance or reinsurance markets or capital markets;
(2) shall minimize the administrative costs of the
Federal Government;
(3) shall, in the case of any contract under sec-
tion 6 for eligible State programs, provide coverage
based solely on insured losses within the State of the
eligible State program purchasing the contract; and
(4) shall, in the case of any contract under sec-
tion 7 for purchase at auction, provide coverage based
solely on insured losses within the region established
pursuant to section 7(a) for which the auction is held.
SEC. 4. QUALIFIED LINES OF COVERAGE.
Each contract for reinsurance coverage made available
under this Act shall provide insurance coverage against res-
idential property losses to homes (including dwellings
owned under condominium and cooperative ownership ar-
rangements) and the contents of apartment buildings.
SEC. 5. COVERED PERILS.
Each contract for reinsurance coverage made available
under this Act shall cover losses that are—
(1) proximately caused by—
(A) earthquakes;
(B) perils ensuing from earthquakes, includ-
ing fire and tsunami;
(C) tropical cyclones having maximum sus-
tained winds of at least 74 miles per hour, in-
cluding hurricanes and typhoons; or
(D) volcanic eruptions; and
(2) in the case only of a contract under section
6, insured by the eligible State program purchasing
the contract.
The Secretary shall, by regulation, define the natural disas-
ter perils under paragraph (1).
SEC. 6. CONTRACTS FOR REINSURANCE COVERAGE FOR EL-
IGIBLE STATE PROGRAMS.
(a) ELIGIBLE STATE PROGRAMS.—A program shall be
eligible to purchase a contract under this section for rein-
surance coverage under this Act only if the program is a
State-operated program that complies with the following re-
quirements:
(1) PROGRAM DESIGN.—The program shall be a
State-operated—
(A) insurance program that offers coverage
for homes (which may include dwellings owned
under condominium and cooperative ownership
arrangements) and the contents of apartments to
State residents because of a finding by the State
insurance commissioner or other State entity au-
thorized to make such determination that such a
program is necessary in order to provide for the
continued availability of such residential cov-
erage for all residents; or
(B) reinsurance program that is designed to
improve private insurance markets which offer
coverage for homes (which may include dwellings
owned under condominium and cooperative own-
ership arrangements) and the contents of apart-
ments because of a finding by the State insur-
ance commissioner or other State entity author-
ized to make such determination that such a pro-
gram is necessary in order to provide for the
continued availability of such residential cov-
erage for all residents.
(2) TAX STATUS.—The program shall be struc-
tured and carried out in a manner so that the pro-
gram is exempt from all Federal taxation.
(3) COVERAGE.—The program shall cover only a
single peril.
(4) EARNINGS.—The program may not provide
for the redistribution of any part of any net profits
of the program to any insurer that participates in the
program.
(5) MITIGATION.—
(A) IN GENERAL.—The program shall in-
clude mitigation provisions that require that not
less than 10 percent of the net investment income
of the State insurance or reinsurance program be
used for programs to mitigate losses from natu-
ral disasters for which the State insurance or re-
insurance program was established. For purposes
of this paragraph, mitigation shall include meth-
ods to reduce losses of life and property.
(B) 
EXCEPTION.—Notwithstanding 
sub-
paragraph (A), in the case of any State for
which the Secretary has determined, pursuant to
a request by the State insurance commissioner,
that the 10 percent requirement under subpara-
graph (A) will jeopardize the actuarial sound-
ness of the State program, subparagraph (A)
shall be applied by substituting ‘‘5 percent’’ for
‘‘10 percent’’.
(6) REQUIREMENTS REGARDING COVERAGE.—
(A) IN GENERAL.—The program—
(i) may not involve cross-subsidization
between any separate property and casualty
lines covered under the program;
(ii) shall include provisions that au-
thorize the State insurance commissioner or
other State entity authorized to make such
a determination to terminate the program if
the insurance commissioner or other such
entity determines that the program is no
longer necessary to ensure the availability
of homeowners’ insurance for all State resi-
dents; and
(iii) shall provide that, for any insur-
ance coverage for homes (which may include
dwellings owned under condominium and
cooperative ownership arrangements) and
the contents of apartments that is made
available under the State insurance pro-
gram and for any reinsurance coverage for
such insurance coverage made available
under the State reinsurance program, the
premium rates charged shall be amounts
that, at a minimum, are sufficient to cover
the full actuarial costs of such coverage,
based on consideration of the risks involved
and accepted actuarial and rate making
principles, anticipated administrative ex-
penses, and loss and loss-adjustment ex-
penses.
(B) APPLICABILITY.—This paragraph shall
apply to any program which, after January 1,
1998, commences offering insurance or reinsur-
ance coverage described in subparagraph (A) or
(B), respectively, of paragraph (1), or effective 2
years after the date of enactment for any existing
State program described in section 8.
(7) OTHER QUALIFICATIONS.—
(A) IN GENERAL.—The program shall have
been certified (for the year for which the coverage
is in effect) by the Secretary as in compliance
with regulations that shall be issued under this
paragraph by the Secretary, in consultation with
the National Commission on Catastrophe Risks
and Insurance Loss Costs established under sec-
tion 10. The regulations shall establish criteria
for State programs to qualify to purchase rein-
surance under this section, which are in addition
to the requirements under the other paragraphs
of this subsection.
(B) CONTENTS.—The regulations issued
under this paragraph shall include requirements
that—
(i) the State program have public
members on its board of directors or have
an advisory board with public members;
(ii) insurance coverage made available
through the State program not supplant
coverage that is otherwise reasonably avail-
able and affordable in the private insurance
market;
(iii) the State program provide ade-
quate insurance protection for the peril cov-
ered, which shall include a range of
deductibles and premium costs that reflect
the applicable risk to eligible properties;
(iv) the insurance protection provided
by the State program is made available on
a nondiscriminatory basis to all qualifying
residents;
(v) the State, or the appropriate local
governments within the State, have certified
that new construction insured by the pro-
gram complies with applicable building,
fire, and safety codes;
(vi) the State, or appropriate local
governments within the State, have in effect
building, fire, and safety codes generally
consistent with Federal Emergency Manage-
ment Agency guidelines designed to reduce
losses from the peril covered;
(vii) the State has taken actions to es-
tablish an insurance rate structure that
takes into account measures to mitigate in-
surance losses; and
(viii) the State program complies with
such other requirements that the Secretary
considers necessary to carry out the pur-
poses of this Act.
(b) TERMS OF CONTRACTS.—Each contract under this
section for reinsurance coverage under this Act shall be sub-
ject to the following terms and conditions:
(1) MATURITY.—The term of the contract shall
not exceed 1 year.
(2) PAYMENT
CONDITION.—The contract shall
authorize claims payments for eligible losses only to
the eligible State program purchasing the coverage.
(3) RETAINED LOSSES REQUIREMENT.—The con-
tract shall pay eligible losses only if the total amount
of insurance claims for losses, which are covered by
qualified lines, occur to properties located within the
State covered by the contract, and result from a single
event of a covered peril, exceeds the amount of re-
tained losses provided under the contract (pursuant to
section 8(a)) purchased by the eligible State program.
(4) MULTIPLE EVENTS.—The contract shall cover
any eligible losses from one or more covered events
that may occur during the term of the contract.
(5) TIMING
OF
ELIGIBLE
LOSSES.—Eligible
losses under the contract shall include only insurance
claims for property covered by qualified lines that are
reported to the eligible State program within the 3-
year period beginning upon the event or events for
which payment under the contract is made.
(6) PRICING.—
(A) DETERMINATION.—The cost of reinsur-
ance coverage under the contract shall be an
amount established by the Secretary as follows:
(i) 
RECOMMENDATIONS.—The 
Sec-
retary shall take into consideration the rec-
ommendations of the Commission in estab-
lishing the cost, but the cost may not be less
than the amount recommended by the Com-
mission.
(ii) FAIRNESS
TO
TAXPAYERS.—The
cost shall be established at a level that is de-
signed to return to the Federal Government
fair compensation for the risks being borne
by the people of the United States and that
takes into consideration the developmental
stage of empirical models of natural disas-
ters and the capacity of private markets to
absorb insured losses from natural disasters.
(iii) SELF-SUFFICIENCY.—The rates
for reinsurance coverage shall be established
at a level that annually produces expected
premiums which shall be sufficient to pay
the annualized cost of all claims, loss ad-
justment expenses, and all administrative
costs of reinsurance coverage offered under
this section.
(B) COMPONENTS.—The cost shall consist of
the following components:
(i) RISK-BASED PRICE.—A risk-based
price, which shall reflect the anticipated
annualized payout of the contract according
to the actuarial analysis and recommenda-
tions of the Commission.
(ii) RISK LOAD.—A risk load in an
amount that is not less than the risk-based
price under clause (i).
(iii) ADMINISTRATIVE COSTS.—A sum
sufficient to provide for the operation of the
Commission and the administrative ex-
penses incurred by the Secretary in carry-
ing out this Act.
(7) REPAYMENT TERMS.—The contract shall in-
clude a condition that requires that, in the event that
a covered purchaser receives payments for qualifying
claims that consist of amounts derived from obliga-
tions issued under section 9(d), such covered pur-
chaser shall continue to purchase the reinsurance cov-
erage provided under this Act, in amounts that are
at least as great as those immediately before the Fund
was credited with amounts borrowed under section
9(d), until such borrowed moneys, including interest,
are repaid pursuant to section 9(d)(5)(B).
(8) INFORMATION.—The contract shall contain a
condition providing that the Commission may require
the State program that is covered to submit to the
Commission all information on the State program
relevant to the duties of the Commission, as deter-
mined by the Secretary.
(9) EXHAUSTION OF COVERAGE.—
(A) IN GENERAL.—Each contract shall pro-
vide that, if during the term of the contract the
coverage under the contract is exhausted because
of payment for losses from a covered event, the
covered purchaser shall, during the 15-day pe-
riod beginning upon the covered event that
causes exhaustion of the coverage under the origi-
nal contract, have an option to make a single
purchase of similar coverage for the remaining
term of the contract under terms and conditions
similar to the original contract, but reflecting a
new loss cost estimate and at a cost prorated
based upon the remaining term.
(B) DISCRETION.—To facilitate making
available contracts pursuant to the exercise of
options under subparagraph (A), the Secretary
may make—
(i) any estimates and determinations
that may be necessary regarding whether
coverage under a contract is exhausted and
the amount of losses retained by a State
program;
(ii) any estimates and assumptions
necessary to establish the price, terms, and
conditions of a contract provided pursuant
to such an option; and
(iii) any subsequent adjustments to a
contract provided pursuant to the exercise of
such an option (including cancellation of
the contract) to conform the price, terms,
and conditions in accordance with findings
by the Secretary regarding issues previously
estimated and assumed by the Secretary
pursuant to clause (ii).
(10) OTHERS.—The contract shall contain such
other terms as the Secretary considers necessary to
carry out this Act and to ensure the long-term finan-
cial integrity of the program under this Act.
(c) PRICE GOUGING PROTECTIONS.—Notwithstanding
any other provision of this section, a State-operated pro-
gram that otherwise meets the requirements of this section
shall be eligible to purchase a contract under this section
for reinsurance coverage made available under this Act only
if the Secretary determines 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.
SEC. 7. 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 3(a)(2), which shall comply with the follow-
ing 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 program
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 regional auc-
tions, which shall include separate regions for all or
part of the State of California and all or part of the
State of Florida. Auctions for each region shall be
conducted not less often than annually.
(3) RESERVE PRICE.—In auctioning a contract
under this section for reinsurance coverage, the Sec-
retary shall set a reserve price as the lowest base price
for that contract, 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 suffi-
cient to provide for the operation of the Commis-
sion and the administrative expenses incurred by
the Secretary in carrying out this section.
(D) MITIGATION.—An adjustment 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.
(4) OTHER REQUIREMENTS.—The Secretary may
establish such other requirements for the auction pro-
gram as the Secretary considers necessary to carry
out this Act.
(b) CONTRACT TERMS AND CONDITIONS.—Each con-
tract for reinsurance coverage auctioned under the program
under this section shall include the following terms and con-
ditions:
(1) MATURITY.—The term of each such contract
shall not exceed 1 year.
(2) TRANSFERABILITY.—The contract shall at all
times be fully transferable, assignable, and divisible.
(3) MULTIPLE EVENTS.—The contract shall con-
tain the provisions described in section 6(b)(4).
(4) THRESHOLD OF COVERAGE.—Each contract
auctioned in a region established under subsection
(a)(2) shall provide that the covered purchaser may
receive a payment for losses covered under the con-
tract if, under a process specified in the contract, the
Secretary determines that the insurance industry will,
as a result of a single event of a covered peril, incur
losses within the coverage area for such region that
are covered by one or more lines of insurance under
section 5 in an aggregate amount, for such event,
greater than the level of retained losses specified in
section 8.
(5) EXHAUSTION OF COVERAGE.—Each contract
shall contain the provisions described in section
6(b)(9).
(6) OTHERS.—The contract shall contain such
other terms as the Secretary considers necessary to
carry out this Act and to ensure the long-term finan-
cial integrity of the program under this Act.
(c) PRICE GOUGING PROTECTIONS.—Notwithstanding
any other provision of this section, a contract for reinsur-
ance auctioned under this section shall provide reinsurance
coverage only for losses incurred for property located in a
State for which the Secretary of the Treasury has deter-
mined that there are in effect, in such State, laws or regula-
tions sufficient to prohibit price gouging, during the term
of such reinsurance coverage, in any disaster area located
within the State.
SEC. 8. MINIMUM LEVEL OF RETAINED LOSSES AND MAXI-
MUM FEDERAL LIABILITY.
(a) AVAILABLE LEVELS OF RETAINED LOSSES.—In
making reinsurance coverage available under this Act, the
Secretary shall make available for purchase contracts for
such coverage that require the sustainment of retained losses
from a single event of a covered peril (as required under
sections 6(b)(3) and 7(b)(4) for payment of eligible losses)
in various amounts, as the Secretary determines appro-
priate and subject to the requirements under subsection (b).
(b) MINIMUM LEVEL OF RETAINED LOSSES.—
(1) CONTRACTS FOR STATE PROGRAMS.—Subject
to paragraph (3) and notwithstanding any other pro-
vision of this Act, a contract for reinsurance coverage
under section 6 for an eligible State program that of-
fers insurance or reinsurance coverage described in
subparagraph (A) or (B), respectively, of section
6(a)(1) may not be made available or sold unless the
contract requires retained losses from a single event of
a covered peril in the following amount:
(A) IN GENERAL.—The State program shall
sustain an amount of retained losses of not less
than the greater of—
(i) $2,000,000,000;
(ii) the claims-paying capacity of the
eligible State program, as determined by the
Secretary; and
(iii) an amount, determined by the
Secretary in consultation with the Commis-
sion which is sufficient to cover eligible
losses in the State during a 12-month pe-
riod for all events having a likelihood of oc-
currence of once every 100 years.
(B) TRANSITION RULE FOR EXISTING STATE
PROGRAMS.—
(i) CLAIMS-PAYING CAPACITY.—Subject
to clause (ii), in the case of any eligible
State program that was offering insurance
or reinsurance coverage on the date of the
enactment of this Act and the claims-paying
capacity 
of 
which 
is 
greater 
than
$2,000,000,000 but less than an amount de-
termined for the State under subparagraph
(A)(iii), the minimum level of retained
losses applicable under this paragraph shall
be the claims-paying capacity of such State
program.
(ii) AGREEMENT.—Clause (i) shall
apply to a State program only if the State
program enters into a written agreement
with the Secretary that shall provide a
schedule for increasing the claims-paying
capacity of the State program to the
amount determined sufficient by the Sec-
retary under subparagraph (A)(iii) of this
subsection over a period not to exceed 5
years. The Secretary may extend the 5-year
period for not more than 2 additional one-
year periods if the Secretary determines
that losses incurred by the State program as
a result of covered perils create excessive
hardship on the State program. The Sec-
retary shall consult with the appropriate of-
ficials of the State program regarding the
required schedule and any potential one-
year extensions.
(C) TRANSITION
RULE
FOR
NEW
STATE
PROGRAMS.—
(i) 100-YEAR
EVENT.—The Secretary
may provide that, in the case of an eligible
State program that, after January 1, 1998,
commences offering insurance or reinsur-
ance coverage, during the 5-year period be-
ginning on the date that reinsurance cov-
erage under section 6 is first made avail-
able, the minimum level of retained losses
applicable under this paragraph shall be the
amount determined for the State under sub-
paragraph (A)(iii), except that such mini-
mum level shall be adjusted annually as
provided in clause (ii) of this subpara-
graph.
(ii) ANNUAL ADJUSTMENT.—Each an-
nual adjustment under this clause shall in-
crease the minimum level of retained losses
applicable under this subparagraph to an
eligible State program described in clause
(i) in a manner such that—
(I) during the course of such 5-
year period, the applicable minimum
level of retained losses approaches the
minimum level that, under subpara-
graph (A), will apply to the eligible
State program upon the expiration of
such period; and
(II) each such annual increase is
a substantially similar amount, to the
extent practicable.
(D) REDUCTION
BECAUSE
OF
REDUCED
CLAIMS-PAYING CAPACITY.—
(i) AUTHORITY.—Notwithstanding sub-
paragraphs (A), (B), and (C) or the terms
contained in a contract for reinsurance
pursuant to such subparagraphs, if the Sec-
retary determines that the claims-paying
capacity of an eligible State program has
been reduced because of payment for losses
due to an event, the Secretary may reduce
the minimum level of retained losses for the
State commensurate with the current capac-
ity of the State program, as determined by
the Secretary, but in no case may such min-
imum level be less than $2,000,000,000.
(ii) TERM OF REDUCTION.—If the min-
imum level of retained losses for an eligible
State program is reduced pursuant to
clause (i), upon the expiration of the 5-year
period beginning upon such reduction the
minimum level of retained losses applicable
to such State program under a contract for
reinsurance coverage under section 6 shall
be increased to an amount not less than the
amount applicable to such State program
immediately before such reduction.
(E) CLAIMS-PAYING
CAPACITY.—For pur-
poses of this paragraph, the claims-paying ca-
pacity of a State-operated insurance or reinsur-
ance program under section 6(a)(1) shall be de-
termined by the Secretary, in consultation with
the Commission, taking into consideration re-
tained losses to private insurers in the State in
an amount assigned by the State insurance com-
missioner, the cash surplus of the program, and
the lines of credit, reinsurance, and other financ-
ing mechanisms of the program established by
law.
(2) AUCTION CONTRACTS.—Subject to paragraph
(3) and notwithstanding any other provision of this
Act, a contract for reinsurance coverage may not be
made available or sold under section 7 through a re-
gional auction unless the insurance industry in the
region for which the auction was conducted sustains
a cumulative amount of retained losses (in covered
lines resulting from covered perils) of not less than the
greater of—
(A) $2,000,000,000; and
(B) an amount, determined by the Sec-
retary in consultation with the Commission,
which is sufficient to cover eligible losses in the
region during a 12-month period for all events
having a likelihood of occurrence of once every
100 years.
(3) ANNUAL ADJUSTMENT.—The Secretary may
annually raise the minimum level of retained losses
established under paragraph (1) for an eligible State
program or under paragraph (2) for a region to re-
flect, as determined by the Secretary—
(A) in the case of an eligible State program,
changes to the claims-paying capacity of the pro-
gram;
(B) changes in the capacity of the private
insurance and reinsurance market;
(C) increases in the market value of prop-
erties; or
(D) such other situations as the Secretary
considers appropriate.
In making any determination under this paragraph
in the minimum level of retained losses, the Secretary
shall establish such level at an amount such that the
program under this Act for making reinsurance cov-
erage available does not displace or compete with the
private insurance or reinsurance markets or capital
markets, as determined by the Secretary.
(4) OPTIONAL
ANNUAL
INFLATIONARY
ADJUST-
MENT.—The Secretary may, on an annual basis,
raise the minimum level of retained losses established
under paragraph (1) for each eligible State program
and under paragraph (2) for each region to reflect the
annual rate of inflation. Any such raise shall be made
in accordance with an inflation index that the Sec-
retary determines to be appropriate. The first such
raise may be made one year after contracts for rein-
surance 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 maximum amount paid for all
events in any single year by the Secretary pursuant
to claims under all contracts for reinsurance coverage
under this Act shall not exceed the applicable maxi-
mum amount for such year determined under para-
graph (2). If, in any single year, claims under exist-
ing contracts for reinsurance coverage exceed the ap-
plicable maximum amount, each claimant shall re-
ceive a prorated portion of the amount available for
payment of claims.
(2) APPLICABLE MAXIMUM AMOUNT.—For pur-
poses of paragraph (1), the applicable maximum
amount shall be—
(A) for any year not referred to in subpara-
graph (B), $25,000,000,000, except that the Sec-
retary shall annually adjust such amount (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; or
(B) for any year during the 4-year period
beginning on the date that contracts for reinsur-
ance coverage under this Act are first made
available for purchase, the dollar amount that
the Secretary shall establish and annually revise,
which 
may 
not 
in 
any 
event 
exceed
$25,000,000,000.
(d) LIMITATION ON PERCENTAGE OF RISK IN EXCESS
OF RETAINED LOSSES.—
(1) IN GENERAL.—The Secretary may not make
available for purchase contracts for reinsurance cov-
erage under this Act that represent more than 50 per-
cent of the risk of insured losses in excess of retained
losses—
(A) in the case of a contract under section
6 for an eligible State program, for such State;
and
(B) in the case of a contract made available
through a regional auction under section 7, for
such region.
(2) PAYOUT.—For purposes of this subsection,
the amount of payout from a reinsurance contract
shall be the amount of eligible losses multiplied by the
percentage in effect at the time under paragraph (1).
SEC. 9. 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 may be used only
to the extent approved in appropriation Acts and only for
the following purposes:
(1) CONTRACT
PAYMENTS.—For payments to
covered purchasers under contracts for reinsurance
coverage for eligible losses under such contracts.
(2) COMMISSION COSTS.—To pay for the operat-
ing costs of the Commission.
(3) ADMINISTRATIVE EXPENSES.—To pay for the
administrative expenses incurred by the Secretary in
carrying out the reinsurance program under this Act.
(4) TERMINATION.—Upon termination under
section 12, as provided in such section.
(d) BORROWING.—
(1) AUTHORITY.—To the extent that the amounts
in the Fund are insufficient to pay claims and ex-
penses under subsection (c), the Secretary may issue
such obligations of the Fund as may be necessary to
cover the insufficiency and shall purchase any such
obligations issued.
(2) PUBLIC DEBT TRANSACTION.—For the pur-
pose of purchasing any such obligations, the Secretary
may use as a public debt transaction the proceeds
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 chapter are
hereby extended to include any purchase by the Sec-
retary of such obligations under this subsection.
(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 transactions
of the United States.
(5) CONDITIONS.—The following conditions shall
apply to any obligations issued under this subsection:
(A) The Secretary may issue such obliga-
tions only to such extent and in such amounts
as are provided in appropriation Acts.
(B) Any obligations issued under this sub-
section shall be repaid, including interest, from
the Fund and shall be recouped from premiums
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 consid-
ers advisable in obligations issued or guaranteed by the
United States.
(f) PROHIBITION OF FEDERAL FUNDS.—Except for
amounts made available pursuant to subsection (d) and sec-
tion 10(h), no Federal funds shall be authorized or appro-
priated for the Fund or for carrying out the reinsurance
program under this Act.
SEC. 10. NATIONAL COMMISSION ON CATASTROPHE RISKS
AND INSURANCE LOSS COSTS.
(a) ESTABLISHMENT.—The Secretary shall establish a
commission to be known as the National Commission on
Catastrophe Risks and Insurance Loss Costs.
(b) DUTIES.—The Commission shall meet for the sole
purpose of advising the Secretary regarding the estimated
loss costs associated with the contracts for reinsurance cov-
erage available under this Act and carrying out the func-
tions specified in this Act.
(c) MEMBERS.—The Commission shall consist of not
more than 5 members, who shall be appointed by the Sec-
retary and shall be broadly representative of the public in-
terest. Members shall have no personal, professional, or fi-
nancial interest at stake in the deliberations of the Commis-
sion. The membership of the Commission shall at all times
include at least 1 representative of a nationally recognized
consumer organization.
(d) TREATMENT OF NON-FEDERAL MEMBERS.—Each
member of the Commission who is not otherwise employed
by the Federal Government shall be considered a special
Government employee for purposes of sections 202 and 208
of title 18, United States Code.
(e) EXPERTS AND CONSULTANTS.— The Commission
may procure temporary and intermittent services under
section 3109(b) of title 5, United States Code, but at a rates
not in excess of the daily equivalent of the annual rate of
basic pay payable for level V of the Executive Schedule, for
each day during which the individual procured is perform-
ing such services for the Commission.
(f) COMPENSATION.—Each member of the Commission
who is not an officer or employee of the Federal Government
shall be compensated at a rate of basic pay payable for level
V of the Executive Schedule, for each day (including travel
time) during which such member is engaged in the perform-
ance of the duties of the Commission. All members of the
Commission who are officers or employees of the United
States shall serve without compensation in addition to that
received for their services as officers or employees of the
United States.
(g) OBTAINING DATA.—The Commission and the Sec-
retary may solicit loss exposure data and such other infor-
mation either deems necessary to carry out its responsibil-
ities from governmental agencies and bodies and organiza-
tions that act as statistical agents for the insurance indus-
try. The Commission and the Secretary shall take such ac-
tions as are necessary to ensure that information that either
deems is confidential or proprietary is disclosed only to au-
thorized individuals working for the Commission or the Sec-
retary. No company which refuses to provide information
requested by the Commission or the Secretary may partici-
pate in the program for reinsurance coverage authorized
under this Act, nor may any State participate if any gov-
ernmental agency within that State has refused to provide
information requested by the Commission or the Secretary.
(h) FUNDING.—
(1) AUTHORIZATION
OF
APPROPRIATIONS.—
There are authorized to be appropriated—
(A) $1,000,000 for fiscal year 1999 for the
initial expenses in establishing the Commission
and the initial activities of the Commission that
cannot timely be covered by amounts obtained
pursuant 
to 
sections 
6(b)(6)(B)(iii) 
and
7(a)(4)(C), as determined by the Secretary; and
(B) such additional sums as may be nec-
essary to carry out subsequent activities of the
Commission.
(2) OFFSET.—The Secretary shall provide, to the
maximum extent practicable, that an amount equal to
any amount appropriated under paragraph (1) is ob-
tained from purchasers of reinsurance coverage under
this Act and deposited in the Fund established under
section 9. Such amounts shall be obtained by inclu-
sion of a provision for the Commission’s expenses in-
corporated into the pricing of the contracts for such
reinsurance 
coverage, 
pursuant 
to 
sections
6(b)(6)(B)(iii) and 7(a)(4)(C).
(i) TERMINATION.—The Commission shall terminate
upon the effective date of the repeal under section 12(c).
SEC. 11. DEFINITIONS.
For purposes of this Act, the following definitions shall
apply:
(1) 
COMMISSION.—The 
term 
‘‘Commission’’
means the National Commission on Catastrophe Risks
and Insurance Loss Costs established under section
10.
(2) COVERED PERILS.—The term ‘‘covered per-
ils’’ means the natural disaster perils under section 5.
(3) COVERED PURCHASER.—The term ‘‘covered
purchaser’’ means—
(A) with respect to reinsurance coverage
made available under a contract under section 6,
the eligible State-operated insurance or reinsur-
ance program that purchases such coverage; and
(B) with respect to reinsurance coverage
made available under a contract under section 7,
the purchaser of the contract auctioned under
such section or any subsequent holder or holders
of the contract.
(4) DISASTER AREA.—The term ‘‘disaster area’’
means a geographical area, with respect to which—
(A) a covered peril specified in section 5 has
occurred; and
(B) a declaration that a major disaster ex-
ists, as a result of the occurrence of such peril—
(i) has been made by the President of
the United States; and
(ii) is in effect.
(5) ELIGIBLE
LOSSES.—The term ‘‘eligible
losses’’ shall be defined by the Secretary, after con-
sultation with the Commission.
(6) ELIGIBLE STATE PROGRAM.—The term ‘‘eli-
gible State program’’ means a State program that,
pursuant to section 6(a), is eligible to purchase rein-
surance coverage made available through contracts
under section 6.
(7) PRICE GOUGING.—The term ‘‘price gouging’’
means the providing of any consumer good or service
by a supplier for a price that the supplier knows or
has reason to know is greater, by at least the percent-
age set forth in a State law or regulation prohibiting
such act (notwithstanding any real cost increase due
to any attendant business risk and other reasonable
expenses that result from the major disaster involved),
than the price charged by the supplier for such con-
sumer good or service immediately before the disaster.
(8) QUALIFIED
LINES.—The term ‘‘qualified
lines’’ means lines of insurance coverage for which
losses are covered under section 4 by reinsurance cov-
erage under this Act.
(9) REINSURANCE COVERAGE.—The term ‘‘rein-
surance coverage under this Act’’ includes coverage
under contracts made available under sections 6
and 7.
(10) SECRETARY.—The term ‘‘Secretary’’ means
the Secretary of the Treasury.
pursuant to subsection (a) or (b), this title (except for this
section) is repealed.
(d) DEFICIT REDUCTION.—The Secretary shall cover
into the General Fund of the Treasury any amounts re-
maining in the Fund under section 9 upon the repeal of
this title.
SEC. 13. ANNUAL STUDY OF COST AND AVAILABILITY OF
DISASTER INSURANCE AND PROGRAM NEED.
(a) IN GENERAL.—The Secretary shall, on an annual
basis, conduct a study and submit to the Congress a public
report on the cost and availability of homeowners’ insur-
ance for losses resulting from catastrophic natural disasters
covered by the reinsurance program under this Act.
(b) CONTENTS.—Each annual study under this section
shall determine and identify, on an aggregate basis—
(1) for each State or region, the capacity of the
private homeowners’ insurance market with respect to
coverage for losses from catastrophic natural disasters;
(2) for each State or region, the percentage of
homeowners who have such coverage, the disasters cov-
ered, and the average cost of such coverage;
(3) for each State or region, the progress that
private reinsurers and capital markets have made in
providing reinsurance for such homeowners’ insur-
ance;
(4) for each State or region, the effects of the
Federal reinsurance program under this Act on the
availability and affordability of such insurance; and
(5) the appropriate time for termination of the
Federal reinsurance program under this Act.
(c) TIMING.—Each annual report under this section
shall be submitted not later than March 30 of the year after
the year for which the study was conducted.
(d) COMMENCEMENT OF REPORTING REQUIREMENT.—
The Secretary shall first submit an annual report under
this section 2 years after the date of the enactment of this
Act.