have returned such amounts to the State fund, 
together with interest on such amounts. 
(3) TAX
STATUS.—The State program shall 
have received from the Secretary (or the Secretary’s 
designee) a written determination, within the mean-
ing of section 6110(b) of the Internal Revenue Code 
of 1986, that the program either— 
(A) constitutes an ‘‘integral part’’ of the 
State that has created it; or 
(B) is otherwise exempt from Federal in-
come taxation. 
(4) EARNINGS.—The State program may not 
provide for any distribution of any part of any net 
profits of the State program to any insurer that par-
ticipates in the State program. 
(5) PREVENTION AND MITIGATION.— 
(A) MITIGATION OF LOSSES.—The State 
program shall include provisions designed to en-
courage and support programs to mitigate 
losses from natural catastrophes for which the 
State insurance or reinsurance program was es-
tablished to provide insurance coverage. 
(B) OPERATIONAL
REQUIREMENTS.—The 
State program shall operate in a State that— 
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(i) requires that an appropriate public 
body within the State shall have adopted 
adequate mitigation measures with effec-
tive enforcement provisions which the Sec-
retary finds are consistent with the criteria 
for construction described in the Inter-
national Code Council building codes; 
(ii) has taken actions to establish an 
insurance rate structure that takes into ac-
count measures to mitigate insured losses; 
and 
(iii) ensures, to the extent that rein-
surance coverage made available under the 
eligible State program results in any cost 
savings in providing insurance coverage for 
risks in such State, such cost savings are 
reflected in premium rates charged to con-
sumers for such coverage. 
(6) REQUIREMENTS REGARDING COVERAGE.— 
The State program— 
(A) may not, except for charges or assess-
ments related to post-event financing or bond-
ing, involve cross-subsidization between any 
separate property and casualty insurance lines 
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covered under the State program pursuant to 
paragraph (1); 
(B) shall be subject to a requirement 
under State law that for any insurance coverage 
made available under the State insurance pro-
gram or for any reinsurance coverage for such 
insurance coverage made available under the 
State reinsurance program, the premium rates 
charged shall cover the expected value of all fu-
ture costs associated with insurance policies or 
reinsurance contracts written by such program, 
in accordance with the principles under section 
303(g); 
(C) shall make available to all qualifying 
policyholders insurance or reinsurance coverage, 
as applicable, and mitigation services on a basis 
that is not unfairly discriminatory; and 
(D) publishes, and displays in a prominent 
location on a Web site for the State insurance 
program, information for the State insurance 
program of estimated assessments and sur-
charges on policyholders, in accordance with 
State laws, regulations, or other requirements, 
for a range of natural disaster or catastrophic 
events having a varying magnitude of losses, in-
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cluding an event projected to result in losses of 
such magnitude that they have a 1 percent 
chance of being equaled or exceeded in any sin-
gle year, based on the current year estimated 
aggregate funding capacity of the State insur-
ance program and State reinsurance program. 
(7) LAND USE AND ZONING.—The State pro-
gram, to the extent possible, seeks to encourage ap-
propriate State and local government units to de-
velop comprehensive land use and zoning plans that 
include natural hazard mitigation. 
(8) RISK-BASED
CAPITAL
REQUIREMENTS.— 
The State program— 
(A) complies with such risk-based capital 
requirements as applicable State law may im-
pose and shall take into consideration asset 
risk, credit risk, underwriting risk, and such 
other relevant risk as determined by the Sec-
retary; and 
(B) for each calendar year, prepares and 
submits to the Secretary a report identifying its 
claim-paying capacity at such time after the 
conclusion of such year, and containing such in-
formation and in such form, as the Secretary 
shall require. 
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(9) OTHER
REQUIREMENTS.—The State pro-
gram complies with such additional organizational, 
underwriting, and financial requirements as the Sec-
retary shall, by regulation, provide to carry out the 
purposes of this Act. 
(b) CERTIFICATION.—The Secretary shall establish 
procedures for initial certification and recertification as an 
eligible State program. 
(c) TRANSITIONAL MECHANISMS.—For the 5-year 
period beginning on the date of the enactment of this Act, 
in the case of a State that does not have an eligible State 
program for the State, a State residual insurance market 
entity, or State-sponsored provider of natural catastrophe 
insurance, for such State shall be considered to be an eligi-
ble State program, but only if such State residual insur-
ance market entity, or State-sponsored provider of natural 
catastrophe insurance, was in existence before such date 
of enactment. 
(d) REINSURANCE TO COVER EXPOSURE.—This sec-
tion may not be construed to limit or prevent any eligible 
State program from obtaining reinsurance coverage for in-
sured losses retained by insurers pursuant to this section. 
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SEC. 502. STUDY AND CONDITIONAL COVERAGE OF COM-
MERCIAL RESIDENTIAL LINES OF INSUR-
ANCE. 
The Secretary shall study, on an expedited basis, the 
need for and impact of expanding the programs estab-
lished by this Act to apply to insured losses of eligible 
State programs for losses arising from all commercial in-
surance policies which provide coverage for properties that 
are composed predominantly of residential rental units. 
The Secretary shall consider the catastrophic insurance 
and reinsurance market for commercial residential prop-
erties, and specifically the availability of adequate private 
insurance coverage when an insured event occurs, the im-
pact any such capacity restrictions have on housing afford-
ability for renters, and the likelihood that such an expan-
sion of the program would increase insurance capacity for 
this market segment. 
SEC. 503. STUDY OF RISK-BASED PRICING AND STATE PRO-
GRAM RATES. 
The Comptroller General of the United States shall 
conduct a study to analyze— 
(1) risk-based rate pricing, to determine the use 
of actuarially sound pricing for State insurance, re-
insurance, or residual market programs, including 
what measures States are taking to implement actu-
arially sound rates; and 
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(2) rates for State insurance, reinsurance, or 
residual market programs that fail to cover the ex-
pected value of all future costs, including the cost of 
capital, associated with insurance policies or reinsur-
ance contracts written by such programs or fail to 
have sufficient assets above their indebtedness to 
meet their obligations. 
Not later than 6 months after the date of the enactment 
of this Act, the Comptroller General shall submit a report 
to the Congress on the results of the study under this sec-
tion. 
SEC. 504. DEFINITIONS. 
In this Act: 
(1) COMMITMENT TO GUARANTEE.—The term 
‘‘commitment to guarantee’’ means a commitment to 
make debt guarantees to an eligible State program 
pursuant to section 202(d). 
(2) ELIGIBLE STATE PROGRAM.—The term ‘‘eli-
gible State program’’ means a State program that 
the Secretary certifies as an eligible State program 
under section 501. 
(3) INSURED LOSS.—The term ‘‘insured loss’’ 
means any loss that is determined by an eligible 
State program as being covered by insurance or re-
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insurance made available under that eligible State 
program. 
(4) QUALIFYING
ASSETS.—The term ‘‘quali-
fying assets’’ means the policyholder surplus of the 
eligible State program as stated in the most recent 
quarterly financial statement filed by the program 
with the domiciliary regulator of the program in the 
last quarter ending prior to the event or events. 
(5) SECRETARY.—The term ‘‘Secretary’’ means 
the Secretary of the Treasury. 
(6) STATE.—The term ‘‘State’’ includes the 
several States, the District of Columbia, the Com-
monwealth of Puerto Rico, Guam, the Common-
wealth of the Northern Mariana Islands, the United 
States Virgin Islands, and American Samoa, and 
any other territory or possession of the United 
States. 
SEC. 505. REGULATIONS. 
The Secretary shall issue such regulations as may be 
necessary to carry out this Act. 
Æ 
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