[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 219 Introduced in House (IH)]







105th CONGRESS
  1st Session
                                H. R. 219

    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 
              Committee on Banking and Financial Services

_______________________________________________________________________

                                 A BILL


 
    To establish a Federal program to provide reinsurance for State 
                      disaster insurance programs.

    Be it enacted by the Senate and House of Representatives 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 1997''.

SEC. 2. CONGRESSIONAL FINDINGS.

    The Congress finds that--
            (1) the rising costs resulting from natural disasters in 
        recent years 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 a sufficient insurance capacity threatens 
        to increase the number of uninsured homeowners, which, in turn, 
        increases the risk of mortgage defaults and the strain on the 
        Federal banking system;
            (3) some States have intervened to ensure the continued 
        availability of homeowners' insurance for all residents;
            (4) it is appropriate that efforts to improve insurance 
        availability be designed and implemented at the State level;
            (5) while State insurance programs may be adequate to cover 
        losses from most natural disasters, a small percentage of 
        events are likely to exceed the financial capacity of these 
        programs and the local insurance market;
            (6) Federal reinsurance for State disaster insurance 
        programs will improve the effectiveness of such State 
        initiatives and increase the likelihood that homeowners' 
        insurance claims will be fully paid in the event of a large 
        natural catastrophe; and
            (7) 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) Program.--The Secretary of the Treasury shall carry out a 
program under this Act to make reinsurance coverage available to 
eligible State insurance programs. The reinsurance coverage shall be 
designed to improve the availability of homeowners' insurance for the 
purpose of facilitating the pooling, and spreading the risk, of 
catastrophic financial losses from natural disasters and to improve the 
solvency of homeowners' insurance markets.
    (b) Contracts.--Under the program under this Act, the Secretary 
shall offer reinsurance coverage through contracts with eligible 
purchasers under section 4, which contracts--
            (1) shall provide coverage based solely on insurance 
        industry losses within the State of the eligible purchaser 
        purchasing the contract;
            (2) shall not interfere in private markets; and
            (3) shall minimize the administrative costs of the Federal 
        Government.

SEC. 4. ELIGIBLE PURCHASERS.

    The following entities shall be qualified to purchase contracts for 
reinsurance coverage made available under this Act:
            (1) State insurance programs.--State-operated insurance 
        programs which offer coverage for homes, condominiums, and the 
        contents of apartments to State residents because of the 
        finding of the State insurance commissioner that such a program 
        is necessary in order to provide for the continued availability 
        of such residential coverage for all residents.
            (2) State reinsurance programs.--State-operated reinsurance 
        programs designed to improve private insurance markets which 
        offer coverage for homes, condominiums, and the contents of 
        apartments because of the finding of the State insurance 
        commissioner that such a program is necessary in order to 
        provide for the continued availability of such residential 
        coverage for all residents.

SEC. 5. QUALIFIED LINES OF COVERAGE.

    A contract for reinsurance coverage made available under this Act 
shall provide insurance coverage against the following losses:
            (1) Residential property.--Residential property losses to 
        homes, condominiums, and the contents of apartment buildings.
            (2) Other losses.--Any other category of losses that the 
        Secretary determines is appropriate for purposes of this Act.

SEC. 6. COVERED PERILS.

    A contract for reinsurance coverage made available under this Act 
shall cover losses that are proximately caused by--
            (1) earthquakes;
            (2) perils ensuing from earthquakes, including fire and 
        tsunami; and
            (3) hurricanes.
The Secretary shall, by regulation, define such natural disaster 
perils.

SEC. 7. TERMS OF REINSURANCE CONTRACTS.

    A contract for reinsurance coverage made available under this Act 
shall include 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 eligible purchasers under 
        section 4.
            (3) Retained losses requirement.--The contract shall pay 
        eligible losses only if the total amount of insurance claims 
        for losses from covered perils to property, which is located 
        within the State covered by the contract and covered by 
        qualified lines, exceed the amount of retained losses provided 
        under the contract (pursuant to section 8(a)) purchased by the 
        eligible purchaser.
            (4) Calculating eligible losses.--Eligible losses under the 
        contract shall include only insurance claims for property 
        covered by qualified lines that are paid within the 3-year 
        period beginning upon the event for which payment under the 
        contract is made.
            (5) Pricing.--The cost of reinsurance coverage under the 
        contract shall be established by the Secretary based upon the 
        recommendations of the National Commission on Catastrophe Risks 
        and Insurance Loss Costs established under section 10 and shall 
        consist of the following components:
                    (A) Risk-based price.--A risk-based price, which 
                shall reflect the anticipated payout of the contract 
                according to the actuarial analysis and recommendations 
                of the Commission.
                    (B) Risk load.--A risk load, determined by the 
                Secretary, of not less than 2 times the risk-based 
                price.
                    (C) Administrative costs.--A sum sufficient to 
                provide for the operation of the Commission and the 
                administrative expenses incurred by the Secretary in 
                carrying out this Act.
        The rates for reinsurance coverage shall produce expected 
        premiums which shall be sufficient to pay for all claims, loss 
        adjustment expense, and all administrative costs due to the 
        reinsurance coverage for the Fund under section 9.
            (6) Repayment terms.--The contract shall require that an 
        eligible purchaser under section 4 which receives payments for 
        qualifying claims that consist of amounts derived from 
        obligations issued under section 9(d) shall--
                    (A) continue to purchase the reinsurance coverage 
                provided under this Act at levels which are at least as 
                great as before the receipt of such payments until such 
                borrowed monies, including interest, are repaid 
                pursuant to section 9(d)(3)(C); or
                    (B) repay the portion of such payment derived from 
                such obligations, including interest, within a 
                reasonable period established by the Secretary.
            (7) Others.--The contract shall contain such other terms as 
        the Secretary considers necessary to ensure the long-term 
        financial integrity of the program under this Act.

SEC. 8. LEVEL OF RETAINED LOSSES AND MAXIMUM FEDERAL LIABILITY.

    (a) Level of Retained Losses.--In making reinsurance coverage 
available under this Act, the Secretary shall make available for 
purchase contracts for reinsurance coverage that require that the 
eligible purchaser purchasing the contract sustain an amount of 
retained losses (as required under section 7(3) for payment of eligible 
losses) in each of the following amounts:
            (1) $2,000,000,000.
            (2) $10,000,000,000.
            (3) Any such other amount, as the Secretary determines 
        appropriate.
Notwithstanding any other provision of this Act, an eligible purchaser 
under section 4 may not purchase a contract for reinsurance coverage 
under this Act requiring an amount of retained losses that is less than 
the current claims-paying capacity for the State-operated insurance or 
reinsurance program that is the eligible purchaser, as determined by 
the Secretary.
    (b) Maximum Federal Liability.--
            (1) In general.--Except as provided in paragraph (3) and 
        notwithstanding any other provision of law, the maximum amount 
        paid in any single year by the Secretary pursuant to claims 
        under all contracts for reinsurance under this Act shall not 
        exceed $25,000,000,000 (except that such dollar amount shall be 
        adjusted as provided in paragraph (2)). If, in any single year, 
        claims under existing contracts for reinsurance exceed 
        $25,000,000,000 (or the amount determined pursuant to 
        adjustment under paragraph (2)), each claimant shall receive a 
        prorated portion of the amount available for payment of claims.
            (2) Annual adjustment.--Upon the expiration of the 4-year 
        period beginning on the date that contracts for reinsurance 
        coverage under this Act are first made available for purchase, 
        and annually thereafter, the Secretary may adjust the dollar 
        amounts set forth in paragraph (1) (as so previously adjusted), 
        to reflect the percentage growth in premium for insurance which 
        covers property under qualified lines.
            (3) Transition limitation.--
                    (A) In general.--During the 4-year period beginning 
                on the date of the enactment of this Act, the Secretary 
                shall establish and periodically revise a dollar amount 
                which shall be the maximum amount that may be paid in 
                any single year during such period pursuant to claims 
                under all contracts for reinsurance under this Act. 
                Such dollar amount limitation may not in any event 
                exceed $25,000,000,000. If, in any single year during 
                such period, claims under existing contracts for 
                reinsurance exceed the dollar amount limitation 
                established for such year pursuant to this paragraph, 
                each claimant shall receive a prorated portion of the 
                amount available for payment of claims.
                    (B) Establishment.--In establishing any dollar 
                amount limitation pursuant to paragraph (1), the 
                Secretary shall take into consideration--
                            (i) the need for expanding the reinsurance 
                        program under this Act;
                            (ii) the amount available in the Fund 
                        established under section 9 and any expected 
                        future credits to the Fund; and
                            (iii) the availability of amounts pursuant 
                        to section 9(d).

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 purchasers of 
        contracts for reinsurance coverage for eligible losses under 
        such contracts.
            (2) Commission costs.--To pay for the operating costs of 
        the National Commission on Catastrophe Risks and Insurance Loss 
        Costs established under section 10.
            (3) Administrative expenses.--To pay for the administrative 
        expenses incurred by the Secretary in carrying out the 
        reinsurance program under this Act.
    (d) Borrowing.--
            (1) Authority.--To the extent that the amounts in the Fund 
        are insufficient to pay claims and expenses under subsection 
        (c), the Secretary may issue such notes and other obligations 
        as may be necessary to cover the insufficiency.
            (2) Interest rates.--Any such obligations shall bear 
        interest at a rate determined by the Secretary, taking into 
        consideration the current market yields on outstanding 
        marketable obligations of the United States of comparable 
        maturities.
            (3) Conditions.--The following conditions shall apply to 
        any obligations issued under this subsection:
                    (A) The total amount of outstanding obligations at 
                any given time shall not exceed the capacity of the 
                Fund to repay such obligations within 20 years.
                    (B) The Secretary may issue such obligations only 
                to such extent and in such amounts as are provided in 
                appropriations Acts.
                    (C) Any obligations issued under this subsection 
                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 considers 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 section 10(g), no Federal 
funds shall be authorized or appropriated 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 (in this section referred to as the ``Commission'').
    (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 available under this Act.
    (c) Members.--The membership of the Commission shall be appointed 
at the discretion of the Secretary, but shall include at least 4 
professional actuaries, 2 representatives of State insurance 
departments, 2 experts in the field of disaster modeling, a structural 
engineer, a meteorologist, and a seismologist.
    (d) Expertise.--Each member appointed to the Commission shall be 
recognized as qualified in a field related to natural disaster risk 
assessment or insurance.
    (e) 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 
section 202 of title 18, United States Code.
    (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 performance 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) Funding.--
            (1) Authorization of appropriations.--There are authorized 
        to be appropriated--
                    (A) $1,000,000 for fiscal year 1997 for the initial 
                expenses in establishing the Commission and the initial 
                activities of the Commission, as determined by the 
                Secretary of the Treasury; and
                    (B) such additional sums as may be necessary 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 obtained from purchasers of 
        reinsurance coverage under this Act and deposited in the Fund 
        established under section 9. Such amounts shall be obtained by 
        inclusion of a provision for the Commission's expenses 
        incorporated into the pricing of the contracts for such 
        reinsurance coverage, pursuant to section 7(5)(C).

SEC. 11. REPORT ON SECONDARY MARKET MECHANISM FOR REINSURANCE 
              CONTRACTS.

    Not later than the expiration of the 18-month period beginning on 
the date of the enactment of this Act, the Secretary shall submit to 
the Congress a report that--
            (1) analyzes the extent of the market for resale of 
        reinsurance contracts under this Act by the Secretary in the 
        capital markets;
            (2) proposes a program or system for making not less than 
        20 percent of the total written dollar value of such contracts 
        available for purchase; and
            (3) contains recommendations for any statutory changes 
        necessary to operate such a program or system.

SEC. 12. DEFINITIONS.

    For purposes of this Act, the following definitions shall apply:
            (1) Covered perils.--The term ``covered perils'' means the 
        natural disaster perils under section 6.
            (2) Qualified lines.--The term ``qualified lines'' means 
        lines of insurance coverage for which losses are covered under 
        section 5 by reinsurance coverage under this Act.
            (3) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.
            (4) State.--The term ``State'' means the States of the 
        United States, the District of Columbia, the Commonwealth of 
        Puerto Rico, the Commonwealth 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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