I
106TH CONGRESS
1ST SESSION
H. R. 3303
To provide for the establishment of the Natural Disaster Insurance Solvency
Fund to ensure adequate private insurance reserves in the event of
catastrophic natural disasters.
IN THE HOUSE OF REPRESENTATIVES
NOVEMBER 10, 1999
Mr. BURR of North Carolina introduced the following bill; which was referred
to the Committee on Banking and Financial Services, and in addition to
the Committees on Ways and Means, and the Budget, for a period to be
subsequently determined by the Speaker, in each case for consideration
of such provisions as fall within the jurisdiction of the committee con-
cerned
A BILL
To provide for the establishment of the Natural Disaster
Insurance Solvency Fund to ensure adequate private in-
surance reserves in the event of catastrophic natural
disasters.
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 ‘‘Natural Disaster In-
surance Solvency Act of 1999’’.
SEC. 2. CONGRESSIONAL FINDINGS.
The Congress makes the following findings:
(1) The risk of a truly catastrophic natural dis-
aster threatens the homeowners and small busi-
nesses of this Nation and jeopardizes the solvency of
our private insurance industry.
(2) It is critical that insurance companies and
State insurance pools have adequate risk manage-
ment plans in place that will allow them to remain
solvent when a truly catastrophic event occurs.
(3) State insurance regulators in the United
States must be assured that our property and cas-
ualty companies and insurance pools have adequate
capital reserves to pay out insurance claims when a
catastrophe occurs.
(4) The Congress must assist State insurance
regulators in their efforts to help private property
and casualty insurance companies to afford suffi-
cient reserves to remain solvent after a catastrophic
natural disaster.
(5) The creation of a private natural disaster
insurance solvency fund will encourage private insur-
ance companies and State pools to set aside reserves
for future events and will assist State insurance reg-
ulators when monitoring these companies for sol-
vency purposes.
(6) Creating private sector, rather than govern-
ment, solutions to the issue of natural disaster fi-
nancing will encourage companies to put in place
risk management plans that will result in a healthier
and more vibrant insurance marketplace, and most
importantly will result in increased availability of
property and casualty insurance in disaster-prone
areas.
SEC. 3. NATURAL DISASTER SOLVENCY INSURANCE FUND.
(a) ESTABLISHMENT.—There is established the Nat-
ural Disaster Insurance Solvency Fund (in this Act re-
ferred to as the ‘‘NDISF’’). The NDISF shall be a body
corporate under the direction of a Board of Directors.
(b) PRIVATE INSURANCE STATUS.—The NDISF
shall—
(1) not be considered a Federal agency;
(2) have employees appointed without regard to
the provisions of title 5, United States Code, gov-
erning appointments in the competitive service, and
paid without regard to the provisions of chapter 51
and subchapter III of chapter 53 of that title relat-
ing to classification and General Schedule pay rates;
and
(3) not be subject to the Federal Advisory Com-
mittee Act or any other Federal law governing the
operation of Federal agencies.
(c) PURPOSE.—The purpose of the NDISF shall be
to hold, invest, and distribute private insurance solvency
reserve amounts for rare catastrophic events, in accord-
ance with this Act. Such solvency reserves may be included
on the annual statements of participating companies for
accounting purposes to assist State insurance regulators
in monitoring and maintaining the solvency of such com-
panies.
(d) POWERS.—The NDISF—
(1) shall have perpetual succession;
(2) may sue and be sued, make contracts, and
acquire, hold, and dispose of real and personal prop-
erty, as may be necessary for its corporate purposes;
(3) may adopt and alter a corporate seal;
(4) may conduct any and all acts necessary and
proper to carry out the purposes of this Act.
(e) MEMBERSHIP.—The NDISF shall provide for
membership, which shall consist of only those insurance
companies that make contributions of solvency reserve
amounts to the NDISF in accordance with section 4.
(f) BOARD OF DIRECTORS.—
(1) MEMBERSHIP.—The Board of Directors of
the NDISF shall consist of 15 persons, who shall be
selected as follows:
(A) 7 directors shall be elected by the
members of the NDISF, but not more than 1
employee of any single private insurer may
serve on the Board at any time.
(B) 7 directors shall be persons who serve
as insurance regulators of a State and shall be
appointed by any national association which
represents the insurance regulatory authorities
of all the States, except that if an insufficient
number of such insurance regulators are willing
to serve or such association fails to make such
appointments, any remaining deficit in the
members of the Board shall be selected by the
members of the NDISF in the manner that
elections are conducted pursuant to subpara-
graph (A), except that such individuals may not
be employed by any private insurer that is a
member of the NDISF.
(C) The Secretary of Commerce.
(2) ELECTION.—In any election for members of
the Board of Directors of the NDISF, the vote of
each member of the NDISF shall be weighted ac-
cording to the proportion of the reserves of the
NDISF contributed by the member. The Board shall
reevaluate such proportions on not less than an an-
nual basis.
(3) TERMS.—The Board shall establish the
number of years of service for terms of members of
the Board, and shall select a chairperson and offi-
cers as appropriate.
(4) VOTING.—Each member of the Board shall
have 1 vote and the Board shall set policy and de-
cide all matters by a simple majority of the votes
cast.
(5) FIDUCIARY
DUTY.—For carrying out the
duties of the Board, the members of the Board that
are not State insurance regulators shall have a fidu-
ciary duty to the NDISF that shall supersede any
duty to an employer or other special interest that
the member may otherwise represent.
(6) LIMITATIONS
ON
LIABILITY.—Individual
members of the NDISF shall not be liable, or in any
way responsible, for the obligations of the NDISF.
(7) INITIAL ORGANIZATION.—Beginning on the
date of the enactment of this Act and until such
time that at least 2 members of the Board are ap-
pointed, the Secretary of Commerce shall act for all
purposes and with full powers of the Board. The
Secretary may utilize the services of the employees
from the Department of Commerce to perform serv-
ices for the Board during such transition period.
During such period, the Secretary shall establish ini-
tial standards for membership in the NDISF and
shall call an initial meeting of the NDISF for pur-
poses of organization.
(g) TREATMENT FOR PURPOSE OF SUITS.—
(1) JURISDICTION AND REMOVAL.—The United
States district courts shall have original but not ex-
clusive jurisdiction over all actions brought by or
against the NDISF. Any action brought in a State
court to which the NDISF is a party may be re-
moved to the appropriate United States district
court under the provision of chapter 89 of title 28,
United States Code.
(2) PROCESS, 
VENUE, 
AND
TIME
LIMITA-
TIONS.—The provisions of title 28, United States
Code, relating to service of process, venue, and limi-
tations of time for bringing action in suits in which
the United States, its officers, or employees are par-
ties, and the rules of procedure adopted under title
28 for suits in which the United States, its officers,
or employees are parties, shall apply in like manner
to suits in which the NDISF, its officers, or employ-
ees are parties.
(3) CLAIMS.—The provisions of chapter 171
and all other provisions of title 28 relating to tort
claims shall apply to tort claims arising out of activi-
ties of the NDISF.
(4) REPRESENTATION.—The Department of
Justice shall furnish the NDISF such legal rep-
resentation as it may require, but with the prior con-
sent of the Attorney General the NDISF may em-
ploy attorneys by contract or otherwise to conduct
litigation brought by or against the NDISF or its of-
ficers or employees in matters affecting the NDISF.
(5) JUDGMENTS.—A judgment against the
NDISF or the Government of the United States
arising out of activities of the NDISF shall be paid
by the NDISF out of any funds available to the
NDISF.
SEC. 4. CONTRIBUTIONS AND DISTRIBUTIONS.
(a) DEVELOPMENT.—The Board shall adopt bylaws
for the NDISF that provide for the NDISF to make con-
tracts to receive insurers’ contributions and make distribu-
tions in accordance with this Act.
(b) SOLVENCY CONTRIBUTIONS.—
(1) LIMITATION ON AMOUNT.—The amount of
solvency reserves contributed to the NDISF by any
member insurer may not exceed the sum of—
(A) 10 percent of any surplus of the mem-
ber as of the date of the beginning of the com-
panies’ fiscal year related to covered perils; and
(B) an amount not exceeding the lesser
of—
(i) 20 percent of any surplus of the
member as of the date of the beginning of
the companies’ fiscal year related to cov-
ered perils; or
(ii) the aggregate premium amount of
any insurance coverage for covered perils
under insurance contracts written by the
member after such date.
(2) TRANSFER.—The acquisition of the assets
of a member of the NDISF by another entity, in-
cluding the right to any reserves of the original
member held by the NDISF and the right to any
distributions under subsection (c) of this section,
shall not affect the treatment of such reserves under
this Act or section 832 of the Internal Revenue
Code.
(c) DISTRIBUTIONS.—
(1) IN
GENERAL.—A distribution under this
paragraph may be made only upon the request of a
member pursuant to a loss that—
(A) proximately results from a rare cata-
strophic event; or
(B) the State insurance regulator for the
State involved determines—
(i) is the result of a covered peril
under section 5; and
(ii) occurs to a member that (I) is in-
solvent upon such occurrence; or (II) will
result in the insolvency of the member, ex-
cept that any such distribution not exceed
the amount necessary to avoid such insol-
vency.
(2) LIMITATION ON AMOUNT.—In no case may
a distribution under this paragraph exceed—
(A) the sum of the amount of the mem-
ber’s solvency contributions to the NDISF and
any interest accumulated on such amounts pur-
suant to section 6(d), except that if some or all
of the solvency reserves of a member of the
NDISF are transferred to another entity, the
amount of the distribution to such entity may
not exceed the amount transferred to such enti-
ty plus any interest attributable to such amount
transferred; or
(B) for an event—
(i) the amount of losses and loss ad-
justment expenses incurred, net of reinsur-
ance, as reported in the member’s annual
statement for the taxable year, that are at-
tributable to the event;
(ii) any nonrecoverable assessments,
surcharges, or other liabilities that are
borne by the member and are attributable
to such event.
(d) TAX TREATMENT.—
(1) DEDUCTION
FOR
CONTRIBUTIONS.—Sub-
section (c) of section 832 of the Internal Revenue
Code of 1986 (relating to the taxable income of in-
surance companies other than life insurance compa-
nies) is amended by striking ‘‘and’’ at the end of
paragraph (12), by striking the period at the end of
paragraph (13) and inserting in lieu thereof ‘‘; and’’,
and by adding at the end the following new para-
graph:
‘‘(14) the qualified contributions during the
taxable year to the NDISF Catastrophe Emergency
Solvency Reserve Account established under section
6 of the Natural Disaster Insurance Solvency Act of
1999.’’.
(2) GROSS INCOME.—Paragraph (1) of section
832(b) of such Code is amended by striking ‘‘and’’
at the end of subparagraph (D), by striking the pe-
riod 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
the NDISF during the taxable year, except that
a distribution made to return to the insurance
company any contribution which is not a quali-
fied contribution (as defined in subsection (h))
for a taxable year shall not be included in gross
income if such distribution is made prior to the
filing of the tax return for such taxable year.’’.
(3) DEFINITION.—Section 832 of such Code
(relating to insurance company taxable income) is
amended by adding at the end the following new
subsection:
‘‘(h) DEFINITIONS RELATING
TO NATURAL DIS-
ASTER INSURANCE SOLVENCY FUND.—For purposes of
subsections (b)(1)(F) and (c)(14), the term ‘qualified con-
tribution’ has the meaning given such term in section 9
of the Natural Disaster Insurance Solvency Act of 1999.’’.
(e) PROPRIETARY INFORMATION.—The Board may
classify information submitted to the NDISF for the de-
termination of contributions and distributions to be pro-
prietary information, which shall not be made public ex-
cept as required by State or Federal law.
SEC. 5. COVERED PERILS.
For purposes of this Act, the term ‘‘covered peril’’
means—
(1) earthquakes;
(2) perils ensuing from earthquakes, including
fire and tsunami;
(3) hurricanes and windstorms;
(4) volcanic eruptions;
(5) wildfires; and
(6) such other natural disasters as the Board
deems appropriate.
SEC. 6. CATASTROPHE EMERGENCY SOLVENCY RESERVE
ACCOUNT.
(a) ESTABLISHMENT.—The NDISF shall establish
and maintain a Catastrophe Emergency Solvency Reserve
Account as a custodial account, trust, or other appropriate
arrangement, to hold all contributions of solvency reserve
amounts submitted to the NDISF in accordance with sec-
tion 4. Such funds shall be exempt from all taxation im-
posed by the Federal Government or any State, county,
municipality, or local taxing authority.
(b) ACCOUNT DEPOSITS.—The Board shall deposit in
the Account any contributions of solvency reserves and
any interest income accrued on such reserves pursuant to
subsection (d).
(c) AVAILABILITY OF AMOUNTS.—Amounts in the
Account shall be available only—
(1) for distribution to members in accordance
with section 4;
(2) for expenses of the NDISF; and
(3) for activities of the NDISF, in coordination
with private insurance companies and State insur-
ance regulators, to provide for mitigation of dam-
ages resulting from covered perils but in an amount
not to exceed 1 percent of the annual interest in the
Catastrophic Emergency Solvency Reserve Account
in subsection (d) less any amount provided under
paragraph (2).
(d) INVESTMENTS.—The Board shall invest amounts
in the Catastrophe Emergency Solvency Reserve Account
that are not required to meet current financial commit-
ments, as the Board considers appropriate, but only in in-
terest-bearing securities issued by the United States hav-
ing such maturities as the Board considers appropriate.
Any interest from such investments shall be exempt from
all taxation imposed by the Federal Government or any
State, county, municipality, or local taxing authority.
SEC. 7. GAO AUDITS.
Not later than 1 year after the NDISF first com-
mences receipt of contributions in accordance with section
4, and once every 3 years for the 12-year period beginning
upon the expiration of such 1-year period, the Comptroller
General of the United States shall audit activities of the
NDISF to ensure that it is complying with the provisions
of this Act and shall submit a report regarding each such
audit to the Congress.
SEC. 8. OFF-BUDGET STATUS AND DEFICIT REDUCTION.
(a) IN GENERAL.—Notwithstanding any other provi-
sion of law, the receipts and disbursements of the NDISF,
including the Trust Account, shall not be counted as new
budget authority or outlays for purposes of—
(1) the budget of the United States Govern-
ment as submitted by the President,
(2) the congressional budget, or
(3) the Balanced Budget and Emergency Def-
icit Control Act of 1985.
(b) PUBLIC ENTERPRISE REVOLVING FUND.—The
financial position of the NDISF shall be reflected in the
appendix to the budget of the United States Government
NDISF in accordance with the limitations of this
Act.
(6) RARE
CATASTROPHIC
EVENT.—The term
‘‘rare catastrophic event’’ means a covered peril that
occurs no more frequently than once every 250 years
that causes at least $10,000,000,000 in insured
losses, except that the Board shall annually adjust
such amount (as it may have been previously ad-
justed) to provide for inflation in accordance with
the Consumer Price Index prepared by the Bureau
of Labor Statistics of the Department of Labor.
(7) STATE.—The term ‘‘State’’ means the
States of the United States, the District of Colum-
bia, the Commonwealth of Puerto Rico, the Com-
monwealth of the Northern Mariana Islands, Guam,
the Virgin Islands, American Samoa, and any other
territory or possession of the United States.
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