SEC. 2. DISTRICT OF COLUMBIA NATURAL DISASTER PRO-
TECTION FUNDS. 
(a) CONTRIBUTIONS TO NATURAL DISASTER PRO-
TECTION FUNDS.—Subsection (c) of section 832 of the In-
ternal Revenue Code of 1986 (relating to the taxable in-
come 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 ‘‘; and’’, and by adding at the 
end the following new paragraph: 
‘‘(14) the qualified contributions during the 
taxable year to a natural disaster protection fund.’’ 
(b) NATURAL DISASTER PROTECTION FUND GROSS 
INCOME.—Subsection (b) of section 832 of such Code is 
amended by adding at the end the following new para-
graph: 
‘‘(9) SPECIAL RULE FOR ASSETS HELD IN NAT-
URAL DISASTER PROTECTION FUND.—For purposes 
of determining gross income under this subsection, 
any items of income, gain, loss, or deduction derived 
from or attributable to any assets held in a natural 
disaster protection fund shall not be taken into ac-
count.’’ 
(c) DISTRIBUTIONS FROM NATURAL DISASTER PRO-
TECTION FUNDS.—Paragraph (1) of section 832(b) of 
such Code is amended by striking ‘‘and’’ at the end of 
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subparagraph (D), by striking the period at the end of 
subparagraph (E) and inserting ‘‘, and’’, and by adding 
at the end the following new subparagraph: 
‘‘(F) the aggregate amount of all distribu-
tions during the taxable year from a natural 
disaster protection fund, except that a distribu-
tion made to return to the qualified insurance 
company any contribution that is not a quali-
fied contribution for a taxable year shall not be 
included in gross income if such distribution is 
made prior to the filing by the qualified insur-
ance company of its tax return for such taxable 
year.’’ 
(d) DEFINITIONS AND OTHER RULES RELATING TO 
NATURAL DISASTER PROTECTION FUNDS.—Section 832 
of such Code is amended by adding at the end the fol-
lowing new subsection: 
‘‘(h) DEFINITIONS AND OTHER RULES RELATING TO 
NATURAL DISASTER PROTECTION FUNDS.—For purposes 
of this section— 
‘‘(1) NATURAL DISASTER PROTECTION FUND.— 
The term ‘natural disaster protection fund’ (here-
after in this subsection referred to as the ‘fund’) 
means any money, securities, or other property held 
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by a qualified insurance company that is identified 
and maintained in a segregated account— 
‘‘(A) which is designated as a ‘natural dis-
aster protection fund’ and held in a bank or 
bank branch located in the District of Columbia 
that is licensed and regulated by the Comp-
troller of the Currency or the District of Colum-
bia Commissioner of Insurance, Securities, and 
Banking, 
‘‘(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 all insurance companies 
under the laws of the District of Columbia, 
‘‘(ii) 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 with respect to which such 
amount is determined, and 
‘‘(iii) no portion of the assets of the 
fund may be paid or distributed from the 
fund except for a qualified distribution. 
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‘‘(2) QUALIFIED
INSURANCE
COMPANY.—The 
term ‘qualified insurance company’ means an insurer 
or reinsurer that— 
‘‘(A) is incorporated and domiciled in the 
District of Columbia, 
‘‘(B) is subject to supervision by the Dis-
trict of Columbia Commissioner of Insurance, 
Securities, and Banking, 
‘‘(C) maintains an office in the District of 
Columbia that employs no fewer than 10 full- 
time equivalent employees, of whom no fewer 
than 5 are residents of the District of Colum-
bia, 
‘‘(D) is subject to taxes imposed by the 
District of Columbia on premiums collected for 
natural catastrophic risk coverage at the rates 
established in section 2608 of title 47, D.C. Of-
ficial Code, or any successor law without regard 
to the location of the insured risk, and 
‘‘(E) is not subject to premium taxes im-
posed by any State or other taxing jurisdiction 
for natural catastrophic risk coverage written 
through the fund. 
‘‘(3) QUALIFIED
CONTRIBUTION.—The term 
‘qualified contribution’ means a contribution to a 
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fund established by a qualified insurance company of 
not more than the total of net premiums or other 
payments received during a taxable year for coverage 
of qualified losses, but only to the extent such con-
tribution, when added to all previous contributions 
to the fund (including net investment earnings of the 
fund) and after subtracting all qualified distribu-
tions from the fund, does not exceed the amount 
reasonably at risk for the payment of qualified losses 
insured through the fund, less reinsurance on those 
risks, as determined actuarially on a multi-year 
basis. 
‘‘(4) QUALIFIED
DISTRIBUTION.—The term 
‘qualified distribution’ means any amount paid or 
distributed for— 
‘‘(A) any payment of a qualified loss pur-
suant to an insurance policy or policy of rein-
surance issued by the qualified insurance com-
pany, 
‘‘(B) any payment made to reinsure or oth-
erwise spread the risk of catastrophe risk writ-
ten by the qualified insurance company, 
‘‘(C) 
any 
excess 
balance 
drawdown 
amount, 
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‘‘(D) any administrative expenses directly 
related to the maintenance and investment of 
the fund, and 
‘‘(E) any claims investigation and adjust-
ments relating to a qualified loss. 
‘‘(5) QUALIFIED
LOSS.—The term ‘qualified 
loss’ means an insured loss on a United States risk 
that satisfies subparagraphs (A) and (B). 
‘‘(A) EVENT.—An insured loss satisfies 
this subparagraph if the loss is attributable to 
one or more of the following events: 
‘‘(i) Wind (including hurricanes and 
tornados). 
‘‘(ii) Earthquake (including any fire 
following). 
‘‘(iii) Flood. 
‘‘(iv) Tsunami or tidal wave. 
‘‘(v) Volcanic eruption. 
‘‘(vi) Fire. 
‘‘(vii) Hail. 
‘‘(viii) Snow, ice, freezing, or other 
winter catastrophes. 
‘‘(ix) Pandemic or other public health 
catastrophe. 
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‘‘(B) CATASTROPHE DESIGNATION OR MIN-
IMUM AGGREGATE INSURED LOSS.—An insured 
loss, with respect to an event described in sub-
paragraph (A), satisfies this subparagraph if at 
least one of the following occurs: 
‘‘(i) Total insured losses from the 
event, or from more than one event hap-
pening simultaneously or immediately fol-
lowing, exceeds $1,000,000,000 on an in-
dustry-wide basis. 
‘‘(ii) The President of the United 
States declares a disaster or state of emer-
gency because of the event. 
‘‘(iii) The Governor or chief executive 
of a State, possession or territory of the 
United States, or of the District of Colum-
bia, declares a disaster or state of emer-
gency because of such event. 
‘‘(iv) The Property Claims Services 
unit of Insurance Services Office, Inc., de-
clares a catastrophic industry-wide loss be-
cause of one or more events. 
‘‘(6) EXCESS BALANCE DRAWDOWN AMOUNT.— 
The term ‘excess balance drawdown amount’ means 
the excess (if any) of— 
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‘‘(A) the amount of the fund balance as of 
the end of the taxable year, over 
‘‘(B) the total amount of exposure of the 
fund to qualified losses at the end of the tax-
able year under policies written by the qualified 
insurance company, as determined actuarially 
on a multi-year basis. 
‘‘(7) UNITED STATES RISK.—The term ‘United 
States risk’ means any hazard, risk, loss, or liability 
attributable to property situated, or an activity con-
ducted, in the United States, or its territories or 
possessions. 
‘‘(8) EXCLUSION OF PREMIUMS AND LOSSES ON 
CERTAIN
PUERTO
RICAN
RISKS.—Notwithstanding 
any other provision of this subsection, premiums and 
losses with respect to risks covered by a catastrophe 
reserve established under the laws or regulations of 
the Commonwealth of Puerto Rico shall not be taken 
into account under this subsection in determining 
the amount of the qualified contributions allowed or 
the amount of qualified losses. 
‘‘(9) CONTRIBUTIONS IN KIND.—A transfer of 
property other than money to a fund shall be treated 
as a sale or exchange of such property for an 
amount equal to its fair market value as of the date 
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of transfer, and appropriate adjustment shall be 
made to the basis of such property. Section 267 
shall apply to any loss realized upon such a transfer. 
‘‘(10) DISTRIBUTIONS IN KIND.—A distribution 
of property other than money from a fund to a 
qualified insurance company shall be treated as a 
sale or exchange of such property, and any gain or 
loss realized on such sale or exchange shall be ex-
cluded from the gross income of the qualified insur-
ance company. 
‘‘(11) REGULATIONS.—The Secretary shall pre-
scribe regulations as may be necessary or appro-
priate to carry out the purposes of this subsection.’’ 
(e) ADDITIONAL TAX ON CERTAIN DISTRIBUTIONS 
FROM A NATURAL DISASTER PROTECTION FUND.—Sub-
section (d) of section 831 of such Code (relating to the 
tax on insurance companies other than life insurance com-
panies) is amended by redesignating subsection (d) as sub-
section (e) and inserting after subsection (c) the following 
new subsection: 
‘‘(d) TAX ON NONQUALIFIED DISTRIBUTIONS.— 
‘‘(1) IN GENERAL.—In the case of a qualified 
insurance company, the tax imposed by this section 
for the current year shall be increased by an amount 
equal to 20 percent of the aggregate amount of non-
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qualified distributions made by such company during 
such year from a natural disaster protection fund. 
‘‘(2) DEFINITIONS.— 
‘‘(A) NONQUALIFIED
DISTRIBUTIONS.— 
The term ‘nonqualified distributions’ means any 
distribution from a natural disaster protection 
fund other than a qualified distribution (as de-
fined in section 832(h)(4)). 
‘‘(B) OTHER
DEFINITIONS.—The terms 
‘qualified insurance company’ and ‘natural dis-
aster protection fund’ shall have the meanings 
ascribed to such terms in section 832(h).’’ 
(f) EFFECTIVE DATE.—The amendments made by 
this bill shall apply to taxable years beginning after De-
cember 31, 2009. 
Æ 
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