[Congressional Bills 105th Congress]
[From the U.S. Government Publishing Office]
[H.R. 579 Introduced in House (IH)]
105th CONGRESS
1st Session
H. R. 579
To provide for a Federal program of insurance against the risk of
catastrophic earthquakes, volcanic eruptions, and hurricanes, and for
other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
February 4, 1997
Mrs. Mink of Hawaii introduced the following bill; which was referred
to the Committee on Banking and Financial Services, and in addition to
the Committee on Science, 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 concerned
_______________________________________________________________________
A BILL
To provide for a Federal program of insurance against the risk of
catastrophic earthquakes, volcanic eruptions, and hurricanes, and for
other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.
(a) Short Title.--This Act shall be cited as the ``Earthquake,
Volcanic Eruption, and Hurricane Hazards Insurance Act of 1997''.
(b) Table of Contents.--
Sec. 1. Short title and table of contents.
Sec. 2. Findings.
Sec. 3. Definitions.
TITLE I--PARTICIPATION BY STATES IN ADOPTION OF HAZARD REDUCTION
MEASURES
Sec. 101. Identification of earthquake-prone, volcanic eruption-prone,
and hurricane-prone States.
Sec. 102. Earthquake, Volcanic Eruption, and Hurricane Loss Mitigation
Advisory Committee.
Sec. 103. Establishment of criteria for loss-reduction measures.
Sec. 104. Self-Sustaining Mitigation Fund.
Sec. 105. State implementation of loss-reduction measures.
Sec. 106. Requirement to purchase primary insurance.
Sec. 107. Effect of noncompliance with State mitigation program.
Sec. 108. Coordination with other programs.
Sec. 109. Report to Congress.
Sec. 110. Regulations.
TITLE II--PRIMARY INSURANCE PROGRAM
Sec. 201. Basic authority and program organization.
Sec. 202. Scope of program.
Sec. 203. Terms and limitations of insurance coverage.
Sec. 204. Establishment of actuarial premium rates.
Sec. 205. Chargeable premium rates.
Sec. 206. Insurance mitigation incentives.
Sec. 207. Earthquake, Volcanic Eruption, and Hurricane Insurance and
Reinsurance Advisory Committee.
Sec. 208. Residential Property Insurance Fund.
Sec. 209. Borrowing from Treasury.
TITLE III--NATIONAL EARTHQUAKE, VOLCANIC ERUPTION, AND HURRICANE EXCESS
LOSS REINSURANCE PROGRAM
Sec. 301. Reinsurance program.
Sec. 302. Lines of insurance.
Sec. 303. Rates.
Sec. 304. Reinsurance contracts.
Sec. 305. Reinsurance Fund.
Sec. 306. Borrowing from Treasury.
SEC. 2. FINDINGS.
The Congress finds that--
(1) the catastrophic and unpredictable nature of
earthquakes, volcanic eruptions, and hurricanes prevent
individual private insurers from offering the necessary
insurance against these perils without the participation of the
Federal Government;
(2) in the absence of an adequate system for insuring
against losses from earthquakes, volcanic eruptions, and
hurricanes, the Federal Government and State governments will
bear excessive and avoidable costs of disaster relief and the
commerce and economy of the Nation would be seriously
destabilized;
(3) the existing systems of private insurance, reinsurance,
and government disaster relief are inadequate and should be
improved and better coordinated;
(4) a reasonable method of providing insurance against such
losses is to create a Federal earthquake, volcanic eruption,
and hurricane insurance and reinsurance program, to assist in
making insurance against such disasters widely available and
affordable to the general public; and
(5) in providing such insurance, the Federal Government
should work constructively with the States and localities to
assist and require, if appropriate, the development, adoption,
and enforcement of hazard reduction measures, including
building codes, land-use planning, and strengthening of new and
existing structures.
SEC. 3. DEFINITIONS.
For purposes of this Act:
(1) The term ``additional losses'' means claim and loss
adjustment expense payments for earthquake, volcanic eruption,
and hurricane coverage issued pursuant to title II that exceed
the accumulated amounts in the Residential Property Insurance
Fund.
(2) The term ``alien insurer'' means an insurer or
reinsurer organized or incorporated in a country other than the
United States.
(3) The term ``critical facilities vulnerable to
hurricanes'' means schools and structures essential to
emergency services necessary for post hurricane recovery
(including hospitals, fire and policy facilities, temporary
shelters, and emergency operating and preparedness centers)
that--
(A) have unreinforced masonry bearing walls, tilt-
up construction, nonductile concrete frame
construction, or other construction, as determined by
the Director, that makes them susceptible to damage
from hurricanes; and
(B) are located in hurricane zones within
hurricane-prone States.
(4) The term ``Director'' means the Director of the Federal
Emergency Management Agency.
(5) The term ``earthquake'' means any shaking or trembling
of the crust of the earth caused by underground seismic forces
or by breaking and shifting of rock beneath the surface.
(6) The term ``earthquake, volcanic eruption, and hurricane
coverage'' means insurance issued pursuant to title II.
(7) The term ``earthquake-prone State'' means a State
determined by the Director pursuant to section 101 to have an
exposure to the earthquake peril.
(8) The term ``Federal agency'' means any department,
agency, corporation, or other instrumentality of the executive
branch of the Federal Government, and includes the Federal
National Mortgage Association and the Federal Home Loan
Mortgage Corporation.
(9) The term ``federally related mortgage loan'' has the
meaning given the term in section 3(1) of the Real Estate
Settlement Procedures Act of 1974, except that the term does
not include any loan described in subparagraph (B)(iv) of such
section.
(10) The term ``fires associated with an earthquake'' means
any fire proximately caused by an earthquake.
(11) The term ``fires associated with a volcanic eruption''
means any fire proximately caused by a volcanic eruption.
(12) The term ``hurricane-prone State'' means a State
determined by the Director pursuant to section 101 to have an
exposure to hurricane peril.
(13) The term ``hurricane zone'' means an area within a
State identified and classified by the Director under section
101(a) as subject to major hurricane risk.
(14) The term ``Insurance and Reinsurance Advisory
Committee'' means the Earthquake, Volcanic Eruption, and
Hurricane Insurance and Reinsurance Advisory Committee
established under section 207.
(15) The term ``Insurance Fund'' means the Residential
Property Insurance Fund established under section 208.
(16) The term ``insurance industry'' means all private
insurers and private reinsurers.
(17) The term ``large building'' means any nonresidential
structure that has more than 1 story or more than 5,000 square
feet per story.
(18) The term ``Loss Mitigation Advisory Committee'' means
the Earthquake, Volcanic Eruption, and Hurricane Loss
Mitigation Advisory Committee established under section 102.
(19) The term ``loss-reduction criteria'' means the
criteria for earthquake, volcanic eruption, and hurricane loss
mitigation established by the Director under section 103.
(20) the term ``Primary Insurance Program'' means the
national earthquake, volcanic eruption, and hurricane insurance
program under title II.
(21) The terms ``private insurer'' and ``private
reinsurer'' mean any insurer or reinsurer that is (A) licensed
or admitted to write property and casualty insurance or
reinsurance within a State, or (B) is a branch of an alien
insurer or reinsurer that is entered through and licensed by a
State to conduct insurance or reinsurance business. In the case
of an insurance exchange or group of unincorporated
underwriters, the term means an underwriting syndicate,
notwithstanding the licensed or admitted status of the
insurance exchange or group of unincorporated underwriters.
(22) The term ``Reinsurance Fund'' means the Reinsurance
Fund established under section 305.
(23) The term ``Reinsurance Program'' means the national
earthquake, volcanic eruption, and hurricane excess loss
reinsurance program under title III.
(24) The term ``residential property'' means any (A) 1- to
4-family residential structure (including mobile or
manufactured homes) and the personal property therein, and (B)
personal property of occupants of residential structures
(including condominiums, cooperatives, and apartment
structures).
(25) The term ``residential property insurance coverage''
means policies, riders, or endorsements of insurance that
provide indemnity, in whole or in part, for the loss,
destruction, or damage of residential property and other
eligible property as determined by the Director.
(26) The term ``seismically hazardous critical facilities''
means schools and structures essential to emergency services
necessary for post earthquake recovery (including hospitals,
fire and policy facilities, temporary shelters, and emergency
operating and preparedness centers) that--
(A) have unreinforced masonry bearing walls, tilt-
up construction, or nonductile concrete frame
construction; and
(B) are located in seismic zones within earthquake-
prone States.
(27) The term ``Self-Sustaining Mitigation Fund'' means the
Fund established under section 104.
(28) The term ``seismic zone'' means an area within a State
identified and classified by the Director under section 101(a)
as subject to major seismic risk.
(29) The term ``tsunami'' means an ocean wave generated by
underwater disturbances in the Earth's crust, primarily
earthquakes and submarine volcanic eruptions.
(30) The term ``volcanic eruption'' means the expulsion, as
a result of natural causes, of molten rock, rock fragments,
gases, ashes, mud, lava flows, and other natural substances
through an opening in the crust of the Earth.
(31) The term ``volcanic eruption-prone State'' means a
State determined by the Director pursuant to section 101 to
have an exposure to the volcanic eruption peril.
(32) The term ``volcanic zone'' means an area within a
State identified and classified by the Director under section
101(a) as subject to major volcanic eruption risk.
TITLE I--PARTICIPATION BY STATES IN ADOPTION OF HAZARD REDUCTION
MEASURES
SEC. 101. IDENTIFICATION OF EARTHQUAKE-PRONE, VOLCANIC ERUPTION-PRONE,
AND HURRICANE-PRONE STATES.
(a) Initial Identification of States.--The Director, in
consultation with the United States Geological Survey, other relevant
Federal entities, and seismic, volcanic, and meteorological experts in
the private sector, shall identify States having an exposure to
earthquake perils, States having an exposure to volcanic eruption
peril, and States having an exposure to hurricane peril, which shall
include any State subject to major or moderate seismic, volcanic
eruption, or hurricane risk, as appropriate. The Director shall also
identify and establish any areas, within such States, that are subject
to major seismic, volcanic eruption, or hurricane risk as seismic
zones, volcanic zones, or hurricane zones, as appropriate. The Director
shall identify such States and zones before the expiration of the 1-
year period beginning on the date of the enactment of this Act, and
shall cause a listing of such States and zones to be published in the
Federal Register and in widely circulated local newspapers in the
applicable States before the expiration of such 1-year period.
(b) Final Notification.--Each State identified under subsection (a)
shall be considered for purposes of this Act to be an earthquake-prone,
volcanic eruption-prone, or hurricane-prone State, as appropriate, upon
the expiration of the 6-month period beginning upon the expiration of
the period under subsection (a). The Director shall notify the chief
executive officer of each State identified under subsection (a) in
writing, before the expiration of such 6-month period, that the State
is an earthquake-prone, volcanic eruption-prone, or hurricane-prone
State, as appropriate, for purposes of this Act.
(c) Ongoing Identification and Notification.--Based upon any
additional seismic, volcanic, and meteorological information that from
time to time becomes available, the Director may identify States (not
identified under subsection (a)) having an exposure to earthquake,
volcanic eruption, or hurricane perils. Any such States shall be
considered to be an earthquake-prone, volcanic eruption-prone, or
hurricane-prone State, as appropriate, for purposes of this Act upon
the notification of the chief executive officer of the State, in
writing, of the identification of the State as such a State.
(d) Appeal.--Any State aggrieved by a final determination as an
earthquake-prone, volcanic eruption-prone, or hurricane-prone State
pursuant to subsection (b) or (c), may, after exhausting administrative
remedies, appeal such determination to any United States district court
for a district located within the State, not more than 60 days after
receipt of notice of such determination. The scope of review by the
court shall be as provided under chapter 7 of title 5, United States
Code. During the pendency of any such litigation, all determinations of
the Director shall be effective and final for the purposes of this
title unless stayed by the court for good cause shown.
SEC. 102. EARTHQUAKE, VOLCANIC ERUPTION, AND HURRICANE LOSS MITIGATION
ADVISORY COMMITTEE.
(a) Establishment.--There is established an independent advisory
committee within the executive branch to be known as the Earthquake,
Volcanic Eruption, and Hurricane Loss Mitigation Advisory Committee (in
this section referred to as the ``Committee''). The Committee, its
members, and its functions shall be separate from the Insurance and
Reinsurance Advisory Committee established under section 207. To the
extent not contradicted by the provisions of this section, the
Committee shall be subject to the provisions of the Federal Advisory
Committee Act.
(b) Membership.--
(1) Appointed members.--The Committee shall be composed of
7 members appointed by the President, by and with the advice
and consent of the Senate. The members shall be chosen from
among citizens of the United States who are respected experts
in the fields of earthquake, volcanic eruption, and hurricane
loss mitigation, who shall include--
(A) 1 individual who is employed by a State
government as an emergency planner;
(B) 1 individual who is knowledgeable regarding
local community building codes;
(C) 1 individual who is employed as a seismic
engineer;
(D) 1 individual who is employed as an expert in
the field of volcanic eruptions; and
(E) 1 individual who is employed as an expert in
the field of hurricanes.
(2) Ex officio member.--Notwithstanding paragraph (1), the
Chairman of the Insurance and Reinsurance Advisory Committee
under section 207 shall serve as an ex officio member of the
Committee under this section.
(c) Vacancies.--A vacancy in the Committee shall be filled in the
manner in which the original appointment was made.
(d) Chairperson.--The President shall designate a chairperson of
the Committee from among members selected for appointment to the
Committee.
(e) Selection.--Not later than 180 days after the date of the
enactment of this Act, the President shall submit to the Senate
nominations for appointment to the Committee.
(f) Functions of the Committee.--The Committee shall review the
loss reduction criteria (including the specific loss-reduction
measures) established under section 103. Not later than 180 days after
receiving the draft of the loss-reduction criteria under section
103(a)(3), the Committee shall submit to the Director written comments
and recommendations for any changes to the criteria.
(g) Responsibilities of Director.--The Director shall fully
cooperate with the Committee and provide the Committee with access to
personnel and information and may request assistance from relevant
Federal agencies (including the National Institute of Standards and
Technology) as the Committee considers necessary to carry out its
functions.
SEC. 103. ESTABLISHMENT OF CRITERIA FOR LOSS-REDUCTION MEASURES.
(a) Development of Criteria.--
(1) In general.--On the basis of research carried out under
this title, the Director shall develop comprehensive loss-
reduction criteria for State and local land use and management
ordinances, building codes, and other loss-reduction measures
consistent with the requirements under subsection (b). The
Director shall periodically update such criteria to reflect
technical advances designed to reduce losses from earthquakes,
volcanic eruptions, and hurricanes.
(2) Coordination.--The Director shall develop the loss-
reduction criteria in coordination and consistent with the
earthquake hazards reduction program under title I of this Act
and the Robert T. Stafford Disaster Relief and Emergency
Assistance Act (and Executive Order 12699 of January 5, 1990).
In developing the loss reduction criteria, the Director shall
consult other affected Federal entities (including the National
Institute of Standards and Technology), the Building Seismic
Safety Council, the Interagency Committee on Seismic Safety in
Construction, the National Oceanic and Atmospheric
Administration, representatives of State and local governments,
regional earthquake, volcanic eruption, and hurricane
preparedness organizations, model building code organizations,
and insurance industry groups.
(3) Submission of draft to advisory committee.--Not later
than the expiration of the 9-month period beginning on the date
of the enactment of this Act, the Director shall submit a draft
of the loss-reduction criteria to the Loss Mitigation Advisory
Committee established under section 102. Before issuing any
final regulations under paragraph (4), the Director shall
consider any recommendations made by such Advisory Committee
regarding the draft criteria.
(4) Regulations.--Not later than the expiration of the 18-
month period beginning on the date of the enactment of this
Act, the Director shall issue regulations establishing the
loss-reduction criteria under this section, subject to the
provisions of subchapter II of chapter 5 of title 5, United
States Code. In issuing final regulations under this paragraph,
the Director shall cause to be published in the Federal
Register a description of any differences between the
recommendations of the Loss Mitigation Advisory Committee and
the final regulations (including the applicability of loss-
reduction measures to States and localities) developed by the
Director. The description shall contain, for each such
difference, an explanation of why the recommendations of the
Advisory Committee were not included in the final regulations.
(b) Content of Criteria.--The Federal loss-reduction criteria
established under this section shall include measures for the reduction
of losses from future earthquakes, volcanic eruptions, and hurricanes,
as follows:
(1) Mandatory inclusion.--The Director shall include in the
loss-reduction criteria the following loss-reduction measures:
(A) Minimum seismic and hurricane building
standards applicable to new residential property and
other buildings located in earthquake-prone States and
hurricane-prone States.
(B) Community-based building codes applicable to
new residential property, which shall meet or exceed
any minimum provisions relating to seismic or hurricane
hazards contained in (i) the most recent edition of the
National Building Code, (ii) the most recent edition of
the Standard Building Code, or (iii) the most recent
edition of the Uniform Building Code.
(C) Community-based plumbing codes or standards
applicable to new residential property which shall meet
or exceed any minimum provisions contained in (i) the
National Standard Plumbing Code and the A40 Safety
Standards of the American National Standards Institute,
or (ii) such other similar codes or standards as may be
appropriate, as determined by the Director.
(2) Discretionary inclusion.--Consistent with reports
submitted to Congress pursuant to section 8(a)(2) of the
Earthquake Hazards Reduction Act of 1977 and section 947 of the
Cranston-Gonzalez National Affordable Housing Act, the Director
shall consider and may include in the loss-reduction criteria
established under this section, any of the following additional
loss-reduction measures:
(A) Community-based building codes which contain
minimum seismic or hurricane provisions (including
restrictions on new unreinforced masonry construction)
for new residential property that is located in a
seismic or hurricane zone, as appropriate, not
currently covered by any of the building codes referred
to in paragraph (1)(B) but identified by the Director
as being located in earthquake-prone or hurricane-prone
States, as appropriate.
(B) Geotechnical techniques to minimize the effects
of ground failures for new large buildings in high-risk
fault, landslide, site amplification, and liquefaction
zones identified in earthquake-prone States and, to the
extent practicable and cost-effective, application of
the same geotechnical techniques to existing large
buildings in the same zones.
(C) Measures to control construction of buildings
in high-risk fault, landslide, site amplification,
liquefaction zones, and volcanic zones identified in
earthquake-prone or volcanic eruption-prone States.
(D) To the extent practicable, retrofitting of
seismically hazardous critical facilities and critical
facilities vulnerable to hurricanes.
(E) Securing of building parapets and external
ornamentations of existing buildings located in
earthquake-prone States or hurricane-prone States.
(F) Bracing of gas water heaters and other measures
to reduce the risk of earthquake-induced fires in
residential property located in earthquake-prone
States.
(G) Inspections before transfer of residential
property in earthquake-prone States and hurricane-prone
States (and provision to buyers of inspection reports)
regarding the adequacy of the anchoring of the
residential structure to the foundation, the presence
of unbraced or braced cripple walls for woodframe
structures, and the bracing of gas water heaters to the
walls for all structures, as appropriate based on risk
of damage by earthquakes or hurricanes.
(3) Recommended measures.--The Director may recommend, in
the loss-reduction criteria, any of the following earthquake
and hurricane preparedness and planning measures:
(A) Expanded research and development by the
National Institute of Standards and Technology and
other government and private sector entities of new
cost-effective building technologies for new
construction and retrofitting of existing buildings.
(B) Educational and promotional campaigns to
encourage additional voluntary mitigation.
(C) Reward-based fiscal incentives, such as lower
property tax assessments, no reassessments for
retrofitting which results in increased property
values, or other tax incentives to encourage use of
state-of-the-art mitigation technology.
(D) State or community-based efforts to assist low-
and moderate-income households to purchase needed
earthquake, volcanic eruption, or hurricane insurance
and to adopt cost-effective loss-reduction measures.
(E) Improvements in long-term earthquake and
hurricane construction practices, including the
training and licensing of earthquake and hurricane
design professionals as well as public and private
building inspectors.
(F) Institutional support, training in earthquake
and hurricane engineering technology and other
disciplines, and staffing to ensure compliance with the
community-based building codes.
(G) Minimizing damage to public utilities,
including sewer, gas, electrical and water systems, and
other lifelines.
(c) Standard.--Any mitigation measures included in the loss-
reduction criteria established under this section shall be practical,
cost-effective, workable, and directly related to the risk of loss from
earthquakes, volcanic eruptions, or hurricanes in areas where
residential property is located.
(d) Technical Assistance.--The Director, in consultation with the
National Institute of Standards and Technology, shall coordinate with
and provide technical assistance to States, interstate, and local
officials and agencies to encourage adoption and enforcement of State
and local actions that incorporate and support the loss-reduction
measures and preparedness goals developed by the Director under this
section.
SEC. 104. SELF-SUSTAINING MITIGATION FUND.
(a) In General.--A percentage of the annual earthquake, volcanic
eruption, and hurricane insurance and excess reinsurance premiums
collected under the Primary Insurance program under title II, as the
Director shall designate, shall be deposited in a separate fund to be
known as the Self-Sustaining Mitigation Fund. The percentage may not
exceed 5 percent, unless the Director determines that the amounts in
the Insurance Fund are sufficient to provide for any probable expected
losses from future earthquakes, volcanic eruptions, or hurricanes.
Interest on amounts in the Fund shall be credited to the Fund.
(b) Use.--Amounts in the Self-Sustaining Mitigation Fund shall be
available, to the extent provided in appropriations Acts, to the
Director to provide assistance to support the earthquake, volcanic
eruption, and hurricane hazard reduction activities, as follows:
(1) Assistance to States under section 105(c).
(2) Assistance to provide earthquake, volcanic eruption,
and hurricane education pursuant to subsection (c).
(3) Assistance for research and development supported by
the National Institute of Standards and Technology on
construction techniques to reduce costs of new construction and
retrofitting of existing buildings.
(4) Low-interest loans or grants for the retrofitting of
seismically hazardous critical facilities and critical
facilities vulnerable to hurricanes.
(c) Education Program.--In coordination with the educational
programs authorized under title I, the Director shall provide
assistance under this section to support programs educating the general
public on the national dimensions of the seismic, volcanic eruption,
and hurricane risk and on methods for homeowners to reduce the hazards
resulting from future earthquakes and hurricanes.
SEC. 105. STATE IMPLEMENTATION OF LOSS-REDUCTION MEASURES.
(a) Definition of Compliance State.--An earthquake-prone, volcanic
eruption-prone, or hurricane-prone State shall be considered a
compliance State for purposes of this title if--
(1) before the expiration of the 2-year period beginning
upon the promulgation of final regulations under section 103
establishing loss-reduction criteria--
(A) the counties and municipalities located in all
seismic, volcanic, and hurricane zones within the State
have adopted and are enforcing minimum applicable
mitigation measures required under the loss-reduction
criteria; and
(B) the chief executive officer of the State has
designated an administrative authority to coordinate
the development and enforcement of earthquake, volcanic
eruption, and hurricane implementation plans for the
State, which plans are equivalent to or exceed the
loss-reduction criteria; and
(2) the State is certified under subsection (b) as a
compliance State.
(b) Determination of Compliance.--
(1) State submission of certification.--Before the
expiration of the 2-year period referred to in subsection
(a)(1), each earthquake-prone, volcanic eruption-prone, or
hurricane-prone State shall submit a certification to the
Director stating whether the State has substantially adopted
and is substantially enforcing the applicable mitigation
measures under the loss-reduction criteria. In providing such
certification, each State may consult with relevant private-
sector accreditation and rating organizations approved by the
Director. The Director shall issue regulations not later than
18 months after the date of the enactment of this Act
describing the criteria to be used in making and reviewing such
State certifications.
(2) Review by director.--The Director shall review each
certification submitted under paragraph (1) to determine
whether it is an accurate manifestation of the submitting
State's substantial compliance with, and enforcement of, the
applicable mitigation measures under the loss-reduction
criteria. If the Director determines that the State
certification is substantially accurate and the State has
adopted and is enforcing the applicable mitigation measures,
the Director shall certify the State for purposes of subsection
(a). Using the criteria established under paragraph (1), the Director
shall review the compliance with, and enforcement of, the applicable
mitigation measures by each compliance State meeting the requirements
of subsection (a) not less than once every 2 years and shall renew
compliance certificates as appropriate.
(3) Noncompliance states.--If an earthquake-prone, volcanic
eruption-prone, or hurricane-prone State fails to submit a
certification under paragraph (1) or the Director determines
under paragraph (1) or (2) that the State has submitted an
inaccurate certification, has not adopted or enforced minimum
applicable mitigation measures, or has failed to have its
compliance certification renewed, the Director shall certify
the State as a noncompliance State for purposes of this title
and shall promptly prepare and publish proposed regulations
setting forth the minimum mitigation measures applicable to the
State.
(4) Review of noncompliance.--A State certified as a
noncompliance State pursuant to paragraph (3) may at any time
after such certification request the Director to revoke its
noncompliance certification and to certify the State pursuant
to paragraph (2).
(c) Assistance To Promote Compliance.--The Director shall provide
assistance to each compliance State from amounts in the Self-Sustaining
Mitigation Fund under section 104, to the extent that amounts for such
assistance are made available under appropriations Acts. The amount of
such assistance provided to each State shall be based on the State's
need for hazard reduction as measured by the State's lack of
preparedness efforts, the amount of earthquake, volcanic eruption, and
hurricane insurance premiums collected in that State under the Primary
Insurance Program, and the State's risk of future earthquakes, volcanic
eruptions, and hurricanes. Such financial assistance shall be used to
support the State's development and implementation of its mitigation
plan, including education, enforcement, and mitigation economic
incentives, such as low-interest loans for seismic retrofitting.
SEC. 106. REQUIREMENT TO PURCHASE PRIMARY INSURANCE.
(a) Connection to Federally Related Mortgage Loans.--After the
expiration of the 2-year period beginning upon the promulgation of
final regulations under section 103 establishing loss-reduction
criteria, no federally related mortgage loan secured by residential
property located in an earthquake-prone, volcanic eruption-prone, or
hurricane-prone State may be made, increased, extended, or renewed
unless the property securing the loan is covered by earthquake,
volcanic eruption, and hurricane insurance coverage available under
title II or equivalent insurance from a private insurer, in the amount
required under section 203(a)(6). The Director shall determine, in
cooperation with the appropriate Federal agencies, the methods by which
such mortgagors shall be required to present proof that they have
obtained an insurance policy consistent with the provisions of this
title.
(b) Exemption for State Properties.--Notwithstanding the other
provisions of this section, earthquake, volcanic eruption, and
hurricane insurance coverage shall not be required on any State-owned
property that is covered under a State policy of self-insurance
adequate in the determination of the Director. The Director shall
publish and periodically revise a list of States to which this
subsection applies.
SEC. 107. EFFECT OF NONCOMPLIANCE WITH STATE MITIGATION PROGRAM.
Each Federal agency or instrumentality responsible for the
supervision, approval, regulation, or insuring any banks, savings and
loans associations, or similar institutions shall, by regulation,
prohibit such institutions from making, increasing, extending, or
renewing a federally related mortgage loan secured by improved real
estate or a mobile home located or to be located in an earthquake-
prone, volcanic eruption-prone, or hurricane-prone State, if--
(1) the State has been determined to be a noncompliance
State pursuant to section 105; and
(2) a presale inspection of the property securing the
loan--
(A) indicates that the property does not meet the
minimum mitigation measures applicable to the property
under the loss-reduction criteria; or
(B) has not been conducted.
SEC. 108. COORDINATION WITH OTHER PROGRAMS.
In carrying out this Act, the Director shall consult with other
departments and agencies of the Federal Government, and with
interstate, State, and local agencies having responsibilities regarding
earthquakes, volcanic eruptions, and hurricanes to ensure that the
programs of such agencies and the Primary Insurance Program under title
II are mutually consistent.
SEC. 109. REPORT TO CONGRESS.
The Director shall submit an annual report under this section to
the Congress, within 90 days after the end of each fiscal year. The
report shall describe the activities carried out under this title and
evaluate any progress achieved in such activities during the preceding
fiscal year.
SEC. 110. REGULATIONS.
(a) Director.--The Director may issue any regulations necessary to
carry out this Act, pursuant to the provisions of subchapter II of
chapter 5 of title 5, United States Code.
(b) Federal Agencies.--Each Federal agency or instrumentality
responsible for the supervision, approval, regulation, or insuring of
banks, savings and loan associations, or similar institutions, shall,
in cooperation with the Director, issue any regulations necessary to
implement the responsibilities of such agency under this Act, pursuant
to the provisions of subchapter II of chapter 5 of title 5, United
States Code.
TITLE II--PRIMARY INSURANCE PROGRAM
SEC. 201. BASIC AUTHORITY AND PROGRAM ORGANIZATION.
(a) Establishment.--To carry out the purposes of this Act, the
Director shall establish and carry out a national earthquake, volcanic
eruption, and hurricane insurance program to provide insurance against
loss resulting from physical damage to or loss of real property or
personal property related thereto, in the United States, arising from
any earthquake, volcanic eruption, or hurricane, including any fire
associated with a volcanic eruption.
(b) Implementation.--In carrying out the Primary Insurance Program
under this title, the Director shall arrange for participation, on
other than a risk-sharing basis, by private insurers, insurance agents
and brokers, insurance adjustment organizations, and other persons. The
Director may take any actions reasonably necessary and appropriate to
carry out this title, including the making of contracts, the employment
and compensation of persons, and the acquisition of real and personal
property.
(c) Insurance Practices.--Any actions of the Director under this
title shall be consistent with standard insurance practices and
generally accepted accounting, actuarial, and underwriting principles.
(d) Suits.--Any lawsuits by or against the Director (or employees
of the Federal Emergency Management Agency) in connection with
activities under this title shall be brought in the district court of
the United States with jurisdiction over the action, except that any
action by an insurer or reinsurer against the Director (or employees of
the Federal Emergency Management Agency) shall be brought in the United
States District Court for the District of Columbia.
(e) Plan of Operation.--
(1) Development.--The Director shall develop a plan of
operation under this subsection to ensure the fair, reasonable,
and equitable administration of the Insurance Fund, the
Reinsurance Fund, and other activities under this title and
title III.
(2) Contents.--The plan of operation shall set forth the
specific policy and programmatic details for operating the
Primary Insurance Program and the Reinsurance Program, and
shall include--
(A) all guidelines, criteria, definitions,
clarifications, and procedures necessary to carry out
this title;
(B) procedures for implementing the mitigation
incentives under section 206; and
(C) standards for insurers to retain expense
allowances from premiums collected under this title.
(3) Study of low-income rates.--In developing the plan of
operation, the Director shall consider options for charging
less than actuarial rates for residential property occupied by
low-income policyholders and may include in the plan any such
option the Director considers necessary, appropriate, and
practicable, subject to the requirements under section 205(c).
(4) Establishment.--
(A) Submission of draft to advisory committee.--Not
later than the expiration of the 12-month period
beginning on the date of the enactment of this Act, the
Director shall submit a draft of the plan of operation
to the Insurance and Reinsurance Advisory Committee
established under section 207. Before issuing any
proposed regulations under subparagraph (B), the
Director shall consider any recommendations made by
such Advisory Committee regarding the draft plan of
operation.
(B) Proposed regulations.--Not later than the
expiration of the 18-month period beginning on the date
of the enactment of this Act, the Director shall issue
proposed regulations establishing the plan of operation
under this section, subject to the provisions of
subchapter II of chapter 5 of title 5, United States
Code. In issuing proposed regulations under this
paragraph, the Director shall cause to be published in
the Federal Register a description of any differences between the
recommendations of the Insurance and Reinsurance Advisory Committee and
the final regulations (including the guidelines, criteria, definitions,
clarifications, and procedures under the plan) developed by the
Director. The description shall contain, for each such difference, an
explanation of why the recommendations of the Advisory Committee were
not included in the proposed regulations.
(C) Comments.--After the regulations have been
issued under subparagraph (B), the Director shall
request comments from the Insurance and Reinsurance
Advisory Committee regarding any changes to the
regulations.
(D) Subsequent changes.--Any changes to the plan of
operation contained in final regulations shall be made
pursuant to regulations issued in the manner provided
in subparagraphs (B) and (C).
SEC. 202. SCOPE OF PROGRAM.
(a) Residential Properties.--In carrying out the Primary Insurance
Program, the Director shall make earthquake, volcanic eruption, and
hurricane coverage available only for residential property. The
Director shall make such coverage available in earthquake-prone States,
volcanic eruption-prone States, and hurricane-prone States.
(b) Additional Types of Properties.--If, on the basis of studies
and investigations undertaken and carried out and information received
or exchanged under section 204, and such other information as may be
necessary, the Director determines that it would be feasible to extend
the Primary Insurance Program to cover other properties, the Director
may recommend to Congress that earthquake, volcanic eruption, and
hurricane coverage under this title be made available to cover any
types and classes of--
(1) other properties in residential areas;
(2) small business properties that are owned or leased and
operated by small business concerns;
(3) religious properties;
(4) agricultural properties;
(5) properties occupied by primary nonprofit organizations;
and
(6) properties owned by State and local governments and
agencies thereof.
SEC. 203. TERMS AND LIMITATIONS OF INSURANCE COVERAGE.
(a) Terms.--Pursuant to the plan of operation established under
section 201 and after consultation with the Insurance and Reinsurance
Advisory Committee, the Director shall establish, by regulation, the
general terms and conditions of insurability for properties eligible
for residential property insurance coverage under section 202. Such
regulations shall meet the requirements of this section and may
include--
(1) the type and locational classification of such eligible
properties;
(2) the nature of damage that may be covered by such
insurance;
(3) appropriate minimum premiums;
(4) appropriate loss-deductibles including variable
deductibles based on the existence of loss-reducing measures
that affect the risk of loss;
(5) appropriate limits on coverage for each classification
of eligible properties;
(6) appropriate minimum coverage amounts pursuant to
section 106(a) for each classification of eligible properties,
which may not be less than the outstanding principal balance of
the mortgage loan securing the property or the maximum coverage
limit for the property under paragraph (5), whichever is less;
and
(7) any other terms and limitations relating to such
residential property insurance coverage that may be necessary
to carry out the purposes of this title.
(b) Limitations.--Earthquake, volcanic eruption, and hurricane
coverage under this title shall cover--
(1) any damage to covered eligible property proximately
caused by--
(A) an earthquake, volcanic eruption, or hurricane;
(B) a tsunami associated with an earthquake,
volcanic eruption, or hurricane;
(C) a fire associated with a volcanic eruption; and
(2) coverage for debris removal and additional living
expenses incurred as a result of direct damage to the premises
by--
(A) earthquake, volcanic eruption, or hurricane;
(B) a tsunami associated with an earthquake,
volcanic eruption, or hurricane; and
(C) a fire associated with a volcanic eruption.
The coverage shall not include coverage for any fires associated with
an earthquake.
(c) Eligibility of Coverage.--Any private insurer issuing
residential property insurance coverage in any earthquake-prone,
volcanic eruption-prone, or hurricane-prone State may provide the
coverage under this title, on behalf of the Federal Government, to
residential property policyholders of the insurer. Any private insurer
electing to participate in the Primary Insurance Program shall make
coverage available to all residential property policyholders of the
insurer in earthquake-prone, volcanic eruption-prone, or hurricane-
prone States. Any private insurer electing to purchase the excess
reinsurance coverage pursuant to title III shall make the coverage
available, on behalf of the Federal Government, or at equivalent
coverage and rates on their own behalf, to all residential property
policyholders of the insurer.
SEC. 204. ESTABLISHMENT OF ACTUARIAL PREMIUM RATES.
(a) Studies and Establishment of Rates.--The Director may undertake
and carry out such studies and investigations and receive and exchange
such information as may be necessary to establish, and shall from time
to time establish and prescribe, by regulation, on a State,
territorial, or other appropriate basis, actuarial premium rates for
types of classes of property eligible for residential property
insurance coverage and the terms and conditions under which such rates
apply.
(b) Arrangements for Services.--In carrying out such studies, the
Director shall consult with the Loss Mitigation Advisory Committee and
the Insurance and Reinsurance Advisory Committee and may enter into
contracts, agreements, or other arrangements to utilize the services of
the United States Geological Survey and other relevant Federal, State,
and local governmental agencies, and other persons.
(c) Considerations.--The Director shall establish actuarial rates
under this section based on--
(1) considerations of the risks involved, including--
(A) the severity and frequency of earthquakes by
seismic zone and States in which the insured property
is located, including known differences in risks from
active faults and known susceptibility to landslide,
site amplification, and liquefaction;
(B) the risk of damage associated with a volcanic
eruption by volcanic zone and States in which the
insured property is located, including proximity to
known lava flows;
(C) the severity and frequency of hurricanes by
hurricane zone and States in which the insured property
is located;
(D) the value of the insured property;
(E) the age of the structures located on the
insured property;
(F) the construction type of the structures located
on the insured property, including woodframe, masonry,
and masonry veneer;
(G) the architectural type of the structures
located on the insured property, including soft first
floor, box construction, and split level;
(H) earthquake or hurricane loss-reduction
measures, including measures described in section 103,
followed in the construction or subsequent retrofitting
of residential property structures; and
(I) any other relevant criteria; and
(2) application of accepted actuarial and rate-making
principles that reflect the risks involved, anticipated
insurance related administrative and operating costs and loss
and loss-adjustment expense payments, and provide for adequate
reserves.
(d) Limitation.--Any rate classification system used by the
Director to establish actuarial rates under this section shall be cost-
effective and shall not impose costs for the initial establishment or
the subsequent administration of the rate plan that are
disproportionate to the size of the insurance premiums.
SEC. 205. CHARGEABLE PREMIUM RATES.
(a) Establishment.--On the basis of actuarial rates established
under section 204 and such other information as may be necessary, the
Director shall from time to time, and after consultation with the Loss
Mitigation Advisory Committee and the Insurance and Reinsurance
Advisory Committee, establish and prescribe, by regulation--
(1) chargeable premium rates for any types and classes of
properties eligible for earthquake, volcanic eruption, and
hurricane coverage; and
(2) the terms and conditions under which such rates shall
apply.
(b) Minimization of Cross-Subsidization.--To the maximum extent
practicable, such chargeable rates shall be actuarial rates over an
extended period of time and shall result in a minimum of cross-
subsidization by reasonably reflecting the risk of damaging
earthquakes, volcanic eruptions, and hurricanes in total and for each
subclassification of policyholders. In setting and adjusting chargeable
rates under this section, the Director shall provide that, over an
extended period of time, expected expenditures from the Insurance Fund
under section 208(c) do not exceed expected receipts of the Fund under
section 208(b).
(c) Low-Income Rates and Mitigation Incentives.--The Director may,
pursuant to the plan of operation under section 201, establish
chargeable rates under this section for (1) residential property
occupied by low-income residents, and (2) residential properties
described in section 206(4), that are less than the actuarial rates
established under section 204, but only to the extent that such rates
do not prevent compliance with the last sentence of subsection (b).
SEC. 206. INSURANCE MITIGATION INCENTIVES.
In carrying out the Primary Insurance Program under this title
pursuant to the plan of operation, the Director shall provide for the
following insurance mitigation incentives:
(1) Charging lower deductible amounts for any residential
property meeting the seismic and hurricane building standards
under the loss-reduction criteria.
(2) Requiring under earthquake, volcanic eruption, and
hurricane coverage that repairs to residential property
sustaining earthquake damage in excess of the deductible
include, at a minimum, anchoring the dwelling to the foundation
and the addition of bracing to cripple walls.
(3) Requiring under earthquake, volcanic eruption, and
hurricane coverage that repairs to residential property
sustaining hurricane damage in excess of the deductible include
such structural or other repairs as the Director considers
appropriate to mitigate against future hurricane damage.
(4) Requiring under earthquake, volcanic eruption, and
hurricane coverage that residential property suffering damage
in an amount greater than 50 percent of the replacement value
of the property shall be rebuilt to at least the minimum
standards under the loss-reduction criteria under section 103
and applicable to the State.
(5) Charging lower premiums or deductible amounts for any
residential property located in a seismic zone in an
earthquake-prone State, or in a hurricane zone in a hurricane-
prone State that passes an earthquake or hurricane inspection
that is required as a condition of sale, paid for by the
seller, and meets the requirements of section 103(b)(2)(G).
(6) Charging lower premiums or deductible amounts for new
residential property not constructed in volcanic zones in a
volcanic eruption-prone State.
SEC. 207. EARTHQUAKE, VOLCANIC ERUPTION, AND HURRICANE INSURANCE AND
REINSURANCE ADVISORY COMMITTEE.
(a) Establishment.--There is established an independent advisory
committee within the executive branch to be known as the Earthquake,
Volcanic Eruption, and Hurricane Insurance and Reinsurance Advisory
Committee (in this section referred to as the ``Committee''). The
Committee, its members, and its functions shall be separate from the
Loss Mitigation Advisory Committee established under section 102. To
the extent not contradicted by the provisions of this section, the
Committee shall be subject to the provisions of the Federal Advisory
Committee Act.
(b) Membership.--
(1) Appointed members.--The Committee shall be composed of
5 members appointed by the President, by and with the advice
and consent of the Senate. The members shall be chosen from
among citizens of the United States and shall include--
(A) 2 individuals who represent the interests of
private insurers;
(B) 1 individual who represents the interests of
private reinsurers;
(C) 1 individual who represents the interests of
insurance agents; and
(D) 1 individual who is a State insurance
regulator.
(2) Ex officio member.--Notwithstanding paragraph (1), the
Chairman of the Loss Mitigation Advisory Committee under
section 102 shall serve as an ex officio member of the
Committee under this section.
(c) Vacancies.--A vacancy in the Commission shall be filled in the
manner in which the original appointment was made.
(d) Chairman.--The President shall designate a chairman of the
Committee from among members selected for appointment to the Committee.
(e) Selection.--Not later than 180 days after the date of the
enactment of this Act, the President shall submit to the Senate
nominations for appointment to the Committee.
(f) Functions of the Committee.--The Committee shall review the
draft plan of operation established under section 201. Within 120 days
after receiving the draft plan of operation, the Committee shall submit
to the Director written comments and recommendations for any changes to
the plan. After final regulations establishing the plan of operation
have been issued, the Committee shall submit a written report not less
than once every 180 days to the Director and the Congress evaluating
the operation of the Federal earthquake, volcanic eruption, and
hurricane insurance and reinsurance programs under this title and
making recommendations for any actions relating to such programs. The
Committee shall respond as soon as practicable to all requests of the
Director made pursuant to subsection (g) or section 201(e)(4)(C).
(g) Responsibilities of the Director.--The Director shall fully
cooperate with the Committee and provide the Committee with access to
personnel and information as the Committee considers necessary to carry
out its functions. The Director shall request comments from the
Committee on any questions regarding operation of the Federal
earthquake, volcanic eruption, and hurricane insurance and reinsurance
programs established under this title.
SEC. 208. RESIDENTIAL PROPERTY INSURANCE FUND.
(a) Establishment.--There is established in the Treasury of the
United States the Residential Property Insurance Fund for the purpose
of carrying out the Primary Insurance Program under this title.
(b) Credits of Fund.--The Insurance Fund shall be credited with--
(1) insurance premiums received by the Director under the
Primary Insurance Program (less any amounts credited to the
Self-Sustaining Mitigation Fund under section 104) and interest
earned on premiums, as provided in subsection (e) of this
section;
(2) any amounts borrowed under section 209;
(3) any amounts appropriated to the Insurance Fund; and
(4) any interest earned on amounts invested under
subsection (d).
(c) Uses of Fund.--Amounts in the Insurance Fund shall be available
for--
(1) payments for losses and loss adjustment expenses under
subsection (f);
(2) payments for insurance company expense allowances paid
(including agents' commissions, State premium taxes, and
companies' administration expenses);
(3) administrative expenses of the Primary Insurance
Program; and
(4) interest payments on amounts borrowed under section 209
for additional losses, if any.
(d) Investment of Amounts.--The Director may request the Secretary
of Treasury to invest any amount in the Residential Property Insurance
Fund in obligations issued or guaranteed by the United States, as the
Director considers appropriate.
(e) Insurance Payments to Fund.--Private insurers issuing
earthquake, volcanic eruption, and hurricane insurance coverage shall
remit the premiums collected, less the insurers' expense allowances (as
provided for in the plan of operation), to the Director on a quarterly
basis 30 days after the end of the quarter, according to the procedures
prescribed in the plan of operation. Such private insurers shall
maintain a separate, interest-bearing account for the premiums to be
submitted to the Director. The interest collected on this account shall
be forwarded to the Residential Property Insurance Fund with the
premiums on a quarterly basis.
(f) Reimbursement of Insurers.--
(1) Requirement and procedure.--The Director shall
reimburse private insurers providing earthquake, volcanic
eruption, and hurricane insurance coverage pursuant to this
title from amounts made available from the Insurance Fund.
Reimbursement for all claim payments up to and including the
policy limits of coverage and for all loss adjustment expenses
paid as a result of earthquake, volcanic eruption, and
hurricane shall be made as follows:
(A) The Director shall reimburse insurers for all
claim payments and loss adjustment expense payments
made pursuant to the Federal Government's obligations.
To the extent that reimbursement is obtained by private
insurers for losses also covered under the Reinsurance
Program, the insurer shall reimburse the Residential
Property Insurance Fund accordingly.
(B) If the gross reimbursements exceed amounts
available in the Residential Property Insurance Fund, a
combination of amounts borrowed from the industry under
subparagraph (C) and amounts borrowed from the Treasury
of the United States under section 209 shall cover the
additional losses.
(C) The industry share under subparagraph (B) shall
be equivalent to 10 percent of the additional losses.
Private insurers issuing earthquake, volcanic eruption,
and hurricane coverage shall be assessed for the
industry participation in the additional losses based
upon the proportion that each insurer's written
premiums for this coverage in each State in which the
earthquake, volcanic eruption, or hurricane events
occurred bear to the total written premiums for such
coverage from all insurers in each State in which the
same events occurred, based on the most recently
published annual report of the Federal Emergency
Management Agency. Assessments under this subparagraph
may be reinsured under title III.
(2) Regulations.--The Director may issue regulations
establishing the general method or methods by which proved and
approved claims for losses may be adjusted and paid for damages
covered by the earthquake, volcanic eruption, and hurricane
coverage issued under this title. The claim practices of the
Insurance Fund shall be subject to and conform with any
applicable State insurance unfair trade practices statutes.
Judicial review of a decision of the Director regarding
reimbursement of a private insurer shall be available pursuant
to section 201(d).
(g) Obligations.--All earthquake, volcanic eruption, and hurricane
insurance coverage provided through the Primary Insurance Program under
this title shall constitute obligations, in accordance with the
provisions of this title, of the United States. The full faith and
credit of the United States is pledged for the full payment and
performance of such obligations, subject to the provisions of
subsection (f)(1)(C). The private insurers participating in the program
shall bear no risk and shall assume no liability for the earthquake,
volcanic eruption, and hurricane coverage provided through the program
except as provided in subsection (f)(1)(C).
(h) Status of Fund.--Any premiums collected for deposit in the
Insurance Fund shall be exempt from all taxation now or hereafter
imposed by the United States, by any territory, dependency or
possession thereof, or by the State, county, municipality, or local
taxing authority, except that the insurance policies issued by or in
conjunction with the Federal Government pursuant to this title shall be
subject, where applicable, to State insurance premium taxes.
SEC. 209. BORROWING FROM TREASURY.
(a) Authority.--To the extent that the accumulated assets,
including any return on investments, in the Residential Property
Insurance Fund are insufficient to pay claims and expenses, the
Director shall issue, from time to time, to the Secretary of the
Treasury, notes and other obligations to cover the insufficiency;
except that the amounts of such obligations outstanding at any one time
shall not exceed--
(1) $25,000,000,000 (or such greater amount as may be
approved by the President); and
(2) such sums as the Congress may provide acting upon the
recommendation of the Director.
(b) Interest Rate.--Obligations under subsection (a) shall bear
interest at a rate determined by the Secretary of the Treasury, taking
into consideration the current average market yield on outstanding
marketable obligations of the United States of comparable maturities.
(c) Deposits.--Any amounts borrowed by the Director under this
section shall be deposited in the Residential Property Insurance Fund.
(d) Repayment.--Any amounts borrowed under this section shall be
recouped, including interest on the borrowed funds, in future
chargeable rates for earthquake, volcanic eruption, and hurricane
coverage pursuant to the plan of operation. The Secretary of the
Treasury shall liberally grant extensions in repayment schedules that
the Director advises the Secretary are necessary.
TITLE III--NATIONAL EARTHQUAKE, VOLCANIC ERUPTION, AND HURRICANE EXCESS
LOSS REINSURANCE PROGRAM
SEC. 301. REINSURANCE PROGRAM.
(a) Availability.--
(1) Initial.--Upon the issuance of final regulations
establishing the plan of operation under section 201, the
Director shall make available, to any private insurer
participating in the Primary Insurance Program under title II
or any private reinsurer which reinsures any such private
insurer, excess reinsurance coverage for direct and indirect
losses that are not eligible for insurance coverage under title
II and arise from an earthquake, a volcanic eruption, or a
hurricane.
(2) Expanded.--Upon the expiration of the 2-year period
beginning upon issuance of the regulations referred to in
paragraph (1), the Director shall make available, to any
private insurer or private reinsurer, excess reinsurance
coverage for direct and indirect losses that are not eligible
for insurance coverage under title II and arise from an
earthquake, a volcanic eruption, or a hurricane. Each private
insurer or reinsurer participating in the Primary Insurance
Program under title II shall purchase the excess reinsurance
coverage under this title.
(b) Liability.--Excess reinsurance under this title shall be
offered as follows:
(1) Industry.--The Reinsurance Fund shall be liable with
respect to such reinsurance in the event of an earthquake, a
volcanic eruption, or a hurricane after the insurance industry
has incurred losses and loss adjustment expenses from the
single event that are covered under the lines set forth in
section 302(a) and that exceed 8 percent of the industry
countrywide subject net written premium, as determined by the
Director.
(2) Federal government.--After the insurance industry has
sustained losses described in paragraph (1), the Federal
Government shall be liable to an individual private insurer or
private reinsurer for 95 percent of qualifying losses in excess
of 8 percent of the private insurer's or private reinsurer's
countrywide subject net written premium.
(c) Qualifying Losses.--For the purposes of subsection (b), the
term ``qualifying losses'' means losses and loss adjustment expenses
incurred by a private insurer or private reinsurer from an earthquake
(including losses and loss adjustment expenses from foreshocks and
aftershocks attributable to the same event and including separate
earthquakes occurring within a 12-month period encompassing the event
described in subsection (b)(1) whose incurred losses and loss
adjustment expenses exceed 2 percent of the private insurer's or
private reinsurer's countrywide subject net written premium), a
volcanic eruption, or a hurricane, reduced--
(1) by any collectible reinsurance recoverable; and
(2) if the percentage of uncollectible reinsurance arising
from the event, as compared to total reinsurance (other than
earthquake, volcanic eruption, or hurricane excess catastrophe
reinsurance purchased from the Federal Government) with respect
to the event is--
(A) more than 0 but not more than 5 percent, by 0
percent of such uncollectible reinsurance amount;
(B) more than 5 percent, but not more than 15
percent, by 33.33 percent of the uncollectible
reinsurance amount above 5 percent;
(C) more than 15 percent, but not more than 25
percent, by--
(i) the amount determined under
subparagraph (B); and
(ii) 66.66 percent of the uncollectible
reinsurance amount above 15 percent; and
(D) more than 25 percent, by--
(i) the amount determined under
subparagraph (C); and
(ii) 100 percent of the uncollectible
reinsurance amount above 25 percent.
(d) Other Eligibility.--
(1) In general.--Notwithstanding the requirements of
subsections (b) and (c), a private insurer or private reinsurer
shall be eligible for excess reinsurance coverage and
reimbursement from the Federal Government if the insurer or
reinsurer has incurred losses, prior to any reinsurance
coverage, from a single event that are included in the lines
covered in section 302(a) and that exceed 50 percent of their
countrywide subject direct written premium or their countrywide
subject net written premium, whichever is greater.
(2) Liability.--After the private insurer or private
reinsurer has sustained losses described in paragraph (1), the
Federal Government shall be liable for 95 percent of qualifying
losses, as defined in subsection (c), in excess of 20 percent
of the private insurer's or the private reinsurer's countrywide
subject net written premium.
(3) Limitation on liability.--The liability of the Federal
Government under this subsection shall be limited to 200
percent of the private insurer's countrywide subject direct net
written premium and 600 percent of the private reinsurer's
countrywide subject assumed net written premium. In the event a
company is both a private insurer and a private reinsurer, the
liability limits shall be 200 percent of their subject direct
net written premium and 600 percent of their subject assumed
net written premium. Intracompany or intragroup reinsurance
arrangements or contracts shall not be considered as
reinsurance in the calculation of insurance and reinsurance
subject direct or subject assumed net written premium under
this subsection.
(e) Definitions.--For purposes of this title:
(1) The term ``subject assumed net written premium'' means
premiums received from other insurance companies for
reinsurance less ceded reinsurance, for all lines of coverage
listed in section 302.
(2) The term ``subject direct net written premium'' means
the aggregate amount of recorded originated premiums, other
than reinsurance, issued during the year whether collected or
not at the close of the year (plus retrospective audit premium
collections) after deducting all return premiums and ceded
reinsurance premiums, for all lines of coverage listed in
section 302.
(3) The term ``subject net written premium'' means direct
and reinsurance premiums received by private insurers and
private reinsurers, less premiums paid for ceded reinsurance,
for all lines of coverage listed in section 302.
(4) The term ``uncollectible reinsurance'' means
reinsurance proceeds due and payable in accordance with the
terms of the reinsurance contract which are not paid within 12
months of the due date.
SEC. 302. LINES OF INSURANCE.
(a) Covered Lines.--The Director shall provide reinsurance coverage
to private insurers for all of the following lines of insurance
appearing in the National Association of Insurance Commissioners Fire
and Casualty Annual Statement filed with the applicable State
department of insurance:
(1) Fire.
(2) Allied Lines.
(3) Farmowner's Multiple Peril.
(4) Homeowner's Multiple Peril.
(5) Commercial Multiple Peril.
(6) Ocean Marine.
(7) Inland Marine.
(8) Earthquake.
(9) Workers Compensation.
(10) Other Liability.
(11) Aircraft (All Perils).
(12) Glass.
(13) Burglary and Theft.
(14) Boiler and Machinery.
(15) Reinsurance.
Reinsurance coverage must be purchased for all covered lines of
insurance and in all affected seismic, volcanic, and hurricane rating
zones in earthquake-prone, volcanic eruption-prone, or hurricane-prone
States with the rates for such coverage set by the Director, pursuant
to section 303.
(b) Other Lines.--The Federal Government shall provide reinsurance
coverage to private reinsurers for all of the lines of insurance
referred to in subsection (a) as well as other lines of insurance
appearing in the National Association of Insurance Commissioners Fire
and Casualty Annual Statement, as determined by the Director in the
plan of operation and in consultation with the Insurance and
Reinsurance Advisory Committee.
SEC. 303. RATES.
(a) Establishment.--The Director shall establish the rates for the
excess reinsurance coverage and adjust the rates when necessary using
generally accepted actuarial principles. To the maximum extent
practicable, such rates shall be actuarial rates which produce a
minimum degree of cross-subsidization over an extended period of time
consistent with the infrequency of catastrophic earthquakes, volcanic
eruptions, and hurricanes. In setting and adjusting the rates, the
Director shall provide that, over an extended period of time, expected
expenditures from the Reinsurance Fund under section 305(c) do not
exceed expected receipts of the Reinsurance Fund under section 305(b).
(b) Considerations.--In setting or adjusting such rates, the
Director shall also provide for a minimum degree of cross-subsidization
among classes of reinsureds by reasonably reflecting the differences in
risk of and vulnerability to loss from earthquakes, volcanic eruptions,
and hurricanes that would be subject to payment from the Reinsurance
Fund, by giving due consideration to the following:
(1) The premium volume of the reinsured by line of
insurance under section 302(a) by seismic, volcanic, and
hurricane zone or State in which the risks insured or reinsured
by the reinsurer are located.
(2) The proportion of the total expected amount of payments
for qualifying losses and loss adjustment expenses by line of
insurance under section 302(a) by seismic, volcanic, and
hurricane zone or State expected for each reinsured.
(c) Limitation.--Any rate classification system used by the
Director under this section shall be cost-effective and shall not
impose costs for the initial establishment or the subsequent
administration of the rating plan that are disproportionate to the size
of the premiums.
(d) Quarterly Payment.--Premiums paid to the Reinsurance Fund for
reinsurance coverage under this title shall be paid on a quarterly
basis and shall be accumulated in the Reinsurance Fund, to be managed
pursuant to section 305.
SEC. 304. REINSURANCE CONTRACTS.
(a) Terms.--The reinsurance contracts issued by the Federal
Government pursuant to this title shall contain terms and conditions
similar to those generally used in private catastrophic reinsurance
contracts.
(b) Judicial Review.--Judicial review of a decision of the Director
regarding payment of claims shall be made available pursuant to section
201(d).
(c) Obligations.--All reinsurance contracts issued under this title
shall constitute obligations, in accordance with the terms of such
reinsurance, of the United States. The full faith and credit of the
United States is pledged for the full payment and performance of such
obligations.
(d) Single Entities.--Any private insurance and reinsurance
companies under the same ownership or management, as determined under
the plan of operation, shall be considered a single entity for purposes
of this title.
SEC. 305. REINSURANCE FUND.
(a) Establishment.--There is established in the Treasury of the
United States the Reinsurance Fund for the purposes of carrying out the
excess loss reinsurance program under this title.
(b) Credits of Fund.--The Reinsurance Fund shall be credited with--
(1) any reinsurance premiums received by the Director under
the excess loss reinsurance program;
(2) any amounts borrowed under section 306; and
(3) any amounts earned under subsection (d).
(c) Use of Fund.--The Reinsurance Fund shall be available to the
Director for--
(1) payments for qualifying losses and loss adjustment
expenses under the excess loss reinsurance program under this
title;
(2) administrative expenses of carrying out the program;
and
(3) interest payments on amounts borrowed from the Treasury
under section 306, if any.
(d) Investment.--The Director shall request the Secretary of the
Treasury to invest any amounts in the Reinsurance Fund in obligations
issued or guaranteed by the United States, as the Director considers
appropriate.
(e) Status of Funds.--Any reinsurance premiums collected for
deposit in the Reinsurance Fund shall be exempt from all taxation now
or hereafter imposed by the United States, by any territory, dependency
or possession thereof, or by any State, county, municipality, or local
taxing authority, except that the insurance policies issued by or in
conjunction with the Federal Government pursuant to this title shall be
subject, where applicable, to State insurance premium taxes.
SEC. 306. BORROWING FROM TREASURY.
(a) Authority.--To the extent that the accumulated assets,
including any return on investments, in the Reinsurance Fund are
insufficient to pay claims and expenses, the Director shall issue, from
time to time, to the Secretary of the Treasury, notes and other
obligations to cover the insufficiency; except that the amounts of such
obligations outstanding at any one time shall not exceed--
(1) $25,000,000,000 (or such greater amount as may be
approved by the President); and
(2) such sums as the Congress may provide acting upon the
recommendation of the Director.
(b) Interest Rate.--Obligations under subsection (a) shall bear
interest at a rate determined by the Secretary of the Treasury, taking
into consideration the current average market yield on outstanding
marketable obligations of the United States of comparable maturities.
(c) Deposits.--Any amounts borrowed by the Director under this
section shall be deposited in the Reinsurance Fund.
(d) Repayment.--Any amounts borrowed pursuant to this section shall
be recouped, including interest on the borrowed funds, in future rates
for excess reinsurance coverage pursuant to the plan of operation. The
Secretary of the Treasury shall liberally grant extensions in repayment
schedules that the Director advises the Secretary are necessary.
<all>