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





                                                 Union Calendar No. 389

105th CONGRESS

  2d Session

                               H. R. 219

                          [Report No. 105-687]

_______________________________________________________________________

                                 A BILL

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

_______________________________________________________________________

                             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





                                                 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 
              Committee 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. Radanovich, 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. Andrews, 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 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 1998''.

SEC. 2. CONGRESSIONAL FINDINGS.

    The Congress finds that--
            (1) the rising costs resulting from natural disasters 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 homeowners, which, in turn, 
        increases the risk of mortgage defaults and the strain on the 
        Nation's 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 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 promote stability in the 
        homeowners' insurance market in the short run and encourage the 
        growth of reinsurance 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 private entities or the 
        capital markets, or both, to provide 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 section 6, 
        which shall be made available for purchase only by eligible 
        State programs; and
            (2) contracts for reinsurance coverage under section 7, 
        which shall be made available for purchase by purchasers under 
        section 7(a)(1) only through auctions 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 catastrophic financial losses from natural 
disasters and to improve the solvency of homeowners' insurance markets.
    (c) Contract Principles.--Under the program under this Act, the 
Secretary shall offer reinsurance coverage through contracts with 
covered purchasers, which contracts--
            (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 section 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 section 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 residential property 
losses to homes (including dwellings owned under condominium and 
cooperative ownership arrangements) 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, including fire 
                and tsunami;
                    (C) tropical cyclones having maximum sustained 
                winds of at least 74 miles per hour, including 
                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 disaster perils 
under paragraph (1).

SEC. 6. CONTRACTS FOR REINSURANCE COVERAGE FOR ELIGIBLE STATE PROGRAMS.

    (a) Eligible State Programs.--A program shall be eligible to 
purchase a contract under this section for reinsurance coverage under 
this Act only if the program is a State-operated program that complies 
with the following requirements:
            (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 authorized to make such 
                determination that such a program is necessary in order 
                to provide for the continued availability of such 
                residential coverage 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 ownership arrangements) and 
                the contents of apartments because of a finding by the 
                State insurance commissioner or other State entity 
                authorized to make such determination that such a 
                program is necessary in order to provide for the 
                continued availability of such residential coverage for 
                all residents.
            (2) Tax status.--The program shall be structured and 
        carried out in a manner so that the program 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 include 
                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 natural disasters for which the 
                State insurance or reinsurance program was established. 
                For purposes of this paragraph, mitigation shall 
include methods to reduce losses of life and property.
                    (B) Exception.--Notwithstanding subparagraph (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 subparagraph (A) will jeopardize the actuarial 
                soundness 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 
                        authorize 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 residents; 
                        and
                            (iii) shall provide that, for any insurance 
                        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 program 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 expenses, and loss 
                        and loss-adjustment expenses.
                    (B) Applicability.--This paragraph shall apply to 
                any program which, after January 1, 1998, commences 
                offering insurance or reinsurance 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 section 10. The regulations 
                shall establish criteria for State programs to qualify 
                to purchase reinsurance 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 available and 
                        affordable in the private insurance market;
                            (iii) the State program provide adequate 
                        insurance protection for the peril covered, 
                        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 program 
                        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 Management 
                        Agency guidelines designed to reduce losses 
                        from the peril covered;
                            (vii) the State has taken actions to 
                        establish an insurance rate structure that 
                        takes into account measures to mitigate 
                        insurance losses; and
                            (viii) the State program complies with such 
                        other requirements that the Secretary considers 
necessary to carry out the purposes of this Act.
    (b) Terms of Contracts.--Each contract under this section for 
reinsurance coverage under this Act shall be subject 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 contract 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 retained 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 reinsurance 
                coverage under the contract shall be an amount 
                established by the Secretary as follows:
                            (i) Recommendations.--The Secretary shall 
                        take into consideration the recommendations of 
                        the Commission in establishing the cost, but 
                        the cost may not be less than the amount 
                        recommended by the Commission.
                            (ii) Fairness to taxpayers.--The cost shall 
                        be established at a level that is designed 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 disasters 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 adjustment 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 recommendations 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 expenses 
                        incurred by the Secretary in carrying out this 
                        Act.
            (7) Repayment terms.--The contract shall include a 
        condition that requires that, in the event that a covered 
        purchaser receives payments for qualifying claims that consist 
        of amounts derived from obligations issued under section 9(d), 
        such covered purchaser shall continue to purchase the 
        reinsurance coverage 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 
        determined by the Secretary.
            (9) Exhaustion of coverage.--
                    (A) In general.--Each contract shall provide 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 period beginning upon the covered 
                event that causes exhaustion of the coverage under the 
                original 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 financial integrity of the program 
        under this Act.
    (c) Price Gouging Protections.--Notwithstanding any other provision 
of this section, a State-operated program 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 COVERAGE.

    (a) Auction Program Requirements.--The Secretary shall carry out a 
program to auction contracts for reinsurance coverage under this Act 
made available pursuant to section 3(a)(2), which shall comply with the 
following 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 auctions, 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 Secretary 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 sufficient to 
                provide for the operation of the Commission 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 program as the Secretary 
        considers necessary to carry out this Act.
    (b) Contract Terms and Conditions.--Each contract for reinsurance 
coverage auctioned under the program under this section shall include 
the following terms and conditions:
            (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 contain 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 contract 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 financial integrity of the program under 
        this Act.
    (c) Price Gouging Protections.--Notwithstanding any other provision 
of this section, a contract for reinsurance 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 
determined 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. 8. MINIMUM LEVEL OF RETAINED LOSSES AND MAXIMUM 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 appropriate 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 provision of this Act, a contract 
        for reinsurance coverage under section 6 for an eligible State 
        program that offers 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 Commission 
                        which is sufficient to cover eligible losses in 
                        the State during a 12-month period for all 
                        events having a likelihood of occurrence 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 
                        determined 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 Secretary 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 Secretary 
                        shall consult with the appropriate officials 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 reinsurance coverage, 
                        during the 5-year period beginning on the date 
                        that reinsurance coverage under section 6 is 
                        first made available, the minimum level of 
                        retained losses applicable under this paragraph 
                        shall be the amount determined for the State 
                        under subparagraph (A)(iii), except that such 
                        minimum level shall be adjusted annually 
as provided in clause (ii) of this subparagraph.
                            (ii) Annual adjustment.--Each annual 
                        adjustment under this clause shall increase 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 subparagraph 
                                (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 
                        subparagraphs (A), (B), and (C) or the terms 
                        contained in a contract for reinsurance 
                        pursuant to such subparagraphs, if the 
                        Secretary 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 capacity of the 
                        State program, as determined by the Secretary, 
                        but in no case may such minimum level be less 
                        than $2,000,000,000.
                            (ii) Term of reduction.--If the minimum 
                        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 purposes of this 
                paragraph, the claims-paying capacity of a State-
                operated insurance or reinsurance program under section 
                6(a)(1) shall be determined by the Secretary, in 
                consultation with the Commission, taking into 
                consideration retained losses to private insurers in 
                the State in an amount assigned by the State insurance 
                commissioner, the cash surplus of the program, and the 
                lines of credit, reinsurance, and other financing 
                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 regional 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 Secretary 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 reflect, as determined by the Secretary--
                    (A) in the case of an eligible State program, 
                changes to the claims-paying capacity of the program;
                    (B) changes in the capacity of the private 
                insurance and reinsurance market;
                    (C) increases in the market value of properties; 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 coverage 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 adjustment.--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 Secretary 
        determines to be appropriate. The first such raise may be made 
        one year after contracts for reinsurance coverage under this 
        Act are first made available 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 maximum amount for such year determined under 
        paragraph (2). If, in any single year, claims under existing 
        contracts for reinsurance coverage exceed the applicable 
        maximum amount, each claimant shall receive a prorated portion 
        of the amount available for payment of claims.
            (2) Applicable maximum amount.--For purposes of paragraph 
        (1), the applicable maximum amount shall be--
                    (A) for any year not referred to in subparagraph 
                (B), $25,000,000,000, except that the Secretary 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 appropriate; or
                    (B) for any year during the 4-year period beginning 
                on the date that contracts for reinsurance 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 coverage under this Act that 
        represent more than 50 percent 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 operating 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 expenses 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 purpose 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 Secretary of 
        such obligations under this subsection.
            (3) Characteristics of obligations.--Obligations 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 determine.
            (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 obligations only 
                to such extent and in such amounts as are provided in 
                appropriation Acts.
                    (B) 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(h), 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.
    (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 coverage available under this Act 
and carrying out the functions specified in this Act.
    (c) Members.--The Commission shall consist of not more than 5 
members, who shall be appointed by the Secretary and shall be broadly 
representative of the public interest. Members shall have no personal, 
professional, or financial interest at stake in the deliberations of 
the Commission. 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 
performing 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 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) Obtaining Data.--The Commission and the Secretary may solicit 
loss exposure data and such other information either deems necessary to 
carry out its responsibilities from governmental agencies and bodies 
and organizations that act as statistical agents for the insurance 
industry. The Commission and the Secretary shall take such actions as 
are necessary to ensure that information that either deems is 
confidential or proprietary is disclosed only to authorized individuals 
working for the Commission or the Secretary. No company which refuses 
to provide information requested by the Commission or the Secretary may 
participate in the program for reinsurance coverage authorized under 
this Act, nor may any State participate if any governmental 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 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 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 perils'' 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 reinsurance 
                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 exists, 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 consultation with the 
        Commission.
            (6) Eligible state program.--The term ``eligible State 
        program'' means a State program that, pursuant to section 6(a), 
        is eligible to purchase reinsurance 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 percentage 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 consumer 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 coverage under this Act.
            (9) Reinsurance coverage.--The term ``reinsurance 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.
            (11) 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.

SEC. 12. TERMINATION.

    (a) In General.--Except as provided in subsection (b), the 
Secretary may not provide any reinsurance coverage under this Act 
covering any period after the expiration of the 10-year period 
beginning on the date of the enactment of this Act.
    (b) Extension.--If upon the expiration of the period under 
subsection (a) the Secretary, in consultation with the Commission, 
determines that continuation of the program for reinsurance coverage 
under this Act is necessary to carry out the purpose of this Act under 
section 3(b) because of insufficient growth of capacity in the private 
homeowners' insurance market, the Secretary shall continue to provide 
reinsurance coverage under this Act until the expiration of the 5-year 
period beginning upon the expiration of the period under subsection 
(a).
    (c) Repeal.--Effective upon the date that reinsurance coverage 
under this Act is no longer available or in force 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 remaining 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' insurance 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 covered, 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' insurance;
            (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.