[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3355 Engrossed in House (EH)]

  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
110th CONGRESS
  1st Session
                                H. R. 3355

_______________________________________________________________________

                                 AN ACT


 
 To ensure the availability and affordability of homeowners' insurance 
                   coverage for catastrophic events.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Homeowners' 
Defense Act of 2007''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purposes.
             TITLE I--NATIONAL CATASTROPHE RISK CONSORTIUM

Sec. 101. Establishment; status; principal office; membership.
Sec. 102. Functions.
Sec. 103. Powers.
Sec. 104. Nonprofit entity; conflicts of interest; audits.
Sec. 105. Management.
Sec. 106. Staff; experts and consultants.
Sec. 107. Federal liability.
Sec. 108. Authorization of appropriations.
     TITLE II--NATIONAL HOMEOWNERS' INSURANCE STABILIZATION PROGRAM

Sec. 201. Establishment.
Sec. 202. Liquidity loans and catastrophic loans for qualified 
                            reinsurance programs.
Sec. 203. Reports and audits.
Sec. 204. Funding.
   TITLE III--REINSURANCE COVERAGE FOR QUALIFIED REINSURANCE PROGRAMS

Sec. 301. Program authority.
Sec. 302. Contract principles.
Sec. 303. Terms of reinsurance contracts.
Sec. 304. Maximum Federal liability.
Sec. 305. Federal Natural Catastrophe Reinsurance Fund.
Sec. 306. Regulations.
                      TITLE IV--GENERAL PROVISIONS

Sec. 401. Qualified reinsurance programs.
Sec. 402. Study and conditional coverage of commercial residential 
                            lines of insurance.
Sec. 403. Definitions.
Sec. 404. Regulations.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--The Congress finds that--
            (1) the United States has a history of catastrophic natural 
        disasters, including hurricanes, tornadoes, flood, fire, 
        earthquakes, and volcanic eruptions;
            (2) although catastrophic natural disasters occur 
        infrequently, they will continue to occur and are predictable;
            (3) such disasters generate large economic losses and a 
        major component of those losses comes from damage and 
        destruction to homes;
            (4) for the majority of Americans, their investment in 
        their home represents their single biggest asset and the 
        protection of that investment is paramount to economic and 
        social stability;
            (5) historically, when a natural disaster eclipses the 
        ability of the private industry and a State to manage the loss, 
        the Federal Government has stepped in to provide the funding 
        and services needed for recovery;
            (6) the cost of such Federal ``bail-outs'' are borne by all 
        taxpayers equally, as there is no provision to repay the money 
        and resources provided, which thereby unfairly burdens citizens 
        who live in lower risk communities;
            (7) as the risk of catastrophic losses grows, so do the 
        risks that any premiums collected by private insurers for 
        extending coverage will be insufficient to cover future 
        catastrophes, and private insurers, in an effort to protect 
        their shareholders and policyholders (in the case of mutually-
        owned companies), have thus significantly raised premiums and 
        curtailed insurance coverage in States exposed to major 
        catastrophes;
            (8) such effects on the insurance industry have been 
        harmful to economic activity in States exposed to major 
        catastrophes and have placed significant burdens on residents 
        of such States;
            (9) Hurricanes Katrina, Rita, and Wilma struck the United 
        States in 2005, causing over $200,000,000,000 in total economic 
        losses, and insured losses to homeowners in excess of 
        $50,000,000,000;
            (10) since 2004, the Congress has appropriated more than 
        $58,000,000,000 in disaster relief to the States affected by 
        natural catastrophes;
            (11) the Federal Government has provided and will continue 
        to provide resources to pay for losses from future 
        catastrophes;
            (12) when Federal assistance is provided to the States, 
        accountability for Federal funds disbursed is paramount;
            (13) the Government Accountability Office or other 
        appropriate agencies must have the means in place to confirm 
        that Federal funds for catastrophe relief have reached the 
        appropriate victims and have contributed to the recovery effort 
        as efficiently as possible so that taxpayer funds are not 
        wasted and citizens are enabled to rebuild and resume 
        productive activities as quickly as possible;
            (14) States that are recipients of Federal funds must be 
        responsible to account for and provide an efficient means for 
        distribution of funds to homeowners to enable the rapid 
        rebuilding of local economies after a catastrophic event 
        without unduly burdening taxpayers who live in areas seldom 
        affected by natural disasters;
            (15) State insurance and reinsurance programs can provide a 
        mechanism for States to exercise that responsibility if they 
        appropriately underwrite and price risk, and if they pay claims 
        quickly and within established contractual terms; and
            (16) State catastrophe reinsurance programs, if 
        appropriately structured and regulated, assume catastrophic 
        risk borne by private insurers without incurring many of the 
        additional costs imposed on private insurers, and thus enable 
        all insurers within the State to underwrite and price coverage 
        at rates designed to encourage property owners to acquire 
        levels of insurance appropriate to their individual risks.
    (b) Purposes.--The purposes of this Act are to establish a program 
to provide Federal support for State-sponsored insurance programs to 
help homeowners prepare for and recover from the damages caused by 
natural catastrophes, to encourage mitigation and prevention for such 
catastrophes, to promote the use of private market capital as a means 
to insure against such catastrophes, to expedite the payment of claims 
and better assist in the financial recovery from such catastrophes.

             TITLE I--NATIONAL CATASTROPHE RISK CONSORTIUM

SEC. 101. ESTABLISHMENT; STATUS; PRINCIPAL OFFICE; MEMBERSHIP.

    (a) Establishment.--There is established an entity to be known as 
the ``National Catastrophe Risk Consortium'' (in this title referred to 
as the ``Consortium'').
    (b) Status.--The Consortium is not a department, agency, or 
instrumentality of the United States Government.
    (c) Principal Office.--The principal office and place of business 
of the Consortium shall be such location within the United States 
determined by the Board of Directors to be the most advantageous for 
carrying out the purpose and functions of the Consortium.
    (d) Membership.--Any State that has established a reinsurance fund 
or has authorized the operation of a State residual insurance market 
entity, or State-sponsored provider of natural catastrophe insurance, 
shall be eligible to participate in the Consortium.

SEC. 102. FUNCTIONS.

    The Consortium shall--
            (1) work with all States, particularly those participating 
        in the Consortium, to gather and maintain an inventory of 
        catastrophe risk obligations held by State reinsurance funds, 
        State residual insurance market entities, and State-sponsored 
        providers of natural catastrophe insurance;
            (2) at the discretion of the affected members and on a 
        conduit basis, issue securities and other financial instruments 
        linked to the catastrophe risks insured or reinsured through 
        members of the Consortium in the capital markets;
            (3) coordinate reinsurance contracts between participating, 
        qualified reinsurance funds and private parties;
            (4) act as a centralized repository of State risk 
        information that can be accessed by private-market participants 
        seeking to participate in the transactions described in 
        paragraphs (2) and (3) of this section;
            (5) use a catastrophe risk database to perform research and 
        analysis that encourages standardization of the risk-linked 
        securities market;
            (6) perform any other functions, other than assuming risk 
        or incurring debt, that are deemed necessary to aid in the 
        transfer of catastrophe risk from participating States to 
        private parties; and
            (7) submit annual reports to Congress describing the 
        activities of the Consortium for the preceding year, and the 
        first such annual report shall include an assessment of the 
        costs to States and regions associated with catastrophe risk 
        and an analysis of the costs and benefits, for States not 
        participating in the Consortium, of such nonparticipation.

SEC. 103. POWERS.

    The Consortium--
            (1) may make and perform such contracts and other 
        agreements with any individual or other private or public 
        entity however designated and wherever situated, as may be 
        necessary for carrying out the functions of the Consortium; and
            (2) shall have such other powers, other than the power to 
        assume risk or incur debt, as may be necessary and incident to 
        carrying out this Act.

SEC. 104. NONPROFIT ENTITY; CONFLICTS OF INTEREST; AUDITS.

    (a) Nonprofit Entity.--The Consortium shall be a nonprofit entity 
and no part of the net earnings of the Consortium shall inure to the 
benefit of any member, founder, contributor, or individual.
    (b) Conflicts of Interest.--No director, officer, or employee of 
the Consortium shall in any manner, directly or indirectly, participate 
in the deliberation upon or the determination of any question affecting 
his or her personal interests or the interests of any Consortium, 
partnership, or organization in which he or she is directly or 
indirectly interested.
    (c) Audits.--
            (1) Annual audit.--The financial statements of the 
        Consortium shall be audited annually in accordance with 
        generally accepted auditing standards by independent certified 
        public accountants.
            (2) Reports.--The report of each annual audit pursuant to 
        paragraph (1) shall be included in the annual report submitted 
        in accordance with section 102(7).

SEC. 105. MANAGEMENT.

    (a) Board of Directors; Membership; Designation of Chairperson.--
            (1) Board of directors.--The management of the Consortium 
        shall be vested in a board of directors (referred to in this 
        title as the ``Board'') composed of not less than 3 members.
            (2) Chairperson.--The Secretary of Treasury, or the 
        designee of the Secretary, shall serve as the chairperson of 
        the Board.
            (3) Membership.--The members of the Board shall include--
                    (A) the Secretary of Homeland Security and the 
                Secretary of Commerce, or the designees of such 
                Secretaries, respectively, but only during such times 
                as there are fewer than two States participating in the 
                Consortium; and
                    (B) a member from each State participating in the 
                Consortium, who shall be appointed by such State.
    (b) Bylaws.--The Board may prescribe, amend, and repeal such bylaws 
as may be necessary for carrying out the functions of the Consortium.
    (c) Compensation, Actual, Necessary, and Transportation Expenses.--
            (1) Non-federal employees.--A member of the Board who is 
        not otherwise employed by the Federal Government shall be 
        entitled to receive the daily equivalent of the annual rate of 
        basic pay payable for level IV of the Executive Schedule under 
        section 5315 of title 5, United States Code, as in effect from 
        time to time, for each day (including travel time) during which 
        such member is engaged in the actual performance of duties of 
        the Consortium.
            (2) Federal employees.--A member of the Board who is an 
        officer or employee of the Federal Government shall serve 
        without additional pay (or benefits in the nature of 
        compensation) for service as a member of the Consortium.
            (3) Travel expenses.--Members of the Consortium shall be 
        entitled to receive travel expenses, including per diem in lieu 
        of subsistence, equivalent to those set forth in subchapter I 
        of chapter 57 of title 5, United States Code.
    (d) Quorum.--A majority of the Board shall constitute a quorum.
    (e) Executive Director.--The Board shall appoint an executive 
director of the Consortium on such terms as the Board may determine.

SEC. 106. STAFF; EXPERTS AND CONSULTANTS.

    (a) Staff.--
            (1) Appointment.--The Board of the Consortium may appoint 
        and terminate such other staff as are necessary to enable the 
        Consortium to perform its duties.
            (2) Compensation.--The Board of the Consortium may fix the 
        compensation of the executive director and other staff.
    (b) Experts and Consultants.--The Board shall procure the services 
of experts and consultants as the Board considers appropriate.

SEC. 107. FEDERAL LIABILITY.

    The Federal Government and the Consortium shall not bear any 
liabilities arising from the actions of the Consortium. Participating 
States shall retain all catastrophe risk until the completion of a 
transaction described in paragraphs (2) and (3) of section 102.

SEC. 108. AUTHORIZATION OF APPROPRIATIONS.

    There are authorized to be appropriated to carry out this title 
$20,000,000 for each of fiscal years 2008 through 2013.

     TITLE II--NATIONAL HOMEOWNERS' INSURANCE STABILIZATION PROGRAM

SEC. 201. ESTABLISHMENT.

    The Secretary of the Treasury shall carry out a program under this 
title to make liquidity loans and catastrophic loans under section 202 
to qualified reinsurance programs to ensure the solvency of such 
programs, to improve the availability and affordability of homeowners' 
insurance, to incent risk transfer to the private capital and 
reinsurance markets, and to spread the risk of catastrophic financial 
loss resulting from natural disasters and catastrophic events.

SEC. 202. LIQUIDITY LOANS AND CATASTROPHIC LOANS FOR QUALIFIED 
              REINSURANCE PROGRAMS.

    (a) Contracts.--The Secretary may enter into a contract with a 
qualified reinsurance program to carry out the purposes of this Act as 
the Secretary may deem appropriate. The contract shall include, at a 
minimum, the conditions for loan eligibility set forth in this section.
    (b) Conditions for Loan Eligibility.--A loan under this section may 
be made only to a qualified reinsurance program and only if--
            (1) before the loan is made--
                    (A) the qualified reinsurance program submits to 
                the Secretary a report setting forth, in such form and 
                including such information as the Secretary shall 
                require, how the program plans to repay the loan;
                    (B) based upon the report of the program, the 
                Secretary determines that the program can meet its 
                repayment obligation under the loan and certifies that 
                the program can meet such obligation; and
                    (C) the State or regional reinsurance program 
                enters into an agreement with the Secretary, as the 
                Secretary shall require, that the State will not use 
                Federal funds of any kind or from any Federal source 
                (including any disaster or other financial assistance, 
                loan proceeds, and any other assistance or subsidy) to 
                repay the loan;
            (2) the program cannot access capital in the private market 
        at a commercially reasonable rate, including through 
        catastrophe bonds and other securities sold through the 
        facility created in title I of this Act, as determined by the 
        Secretary, and a loan may be made to such a qualified 
        reinsurance program only to the extent that such program cannot 
        access capital in the private market at a commercially 
        reasonable rate;
            (3) the Secretary determines that an event has resulted in 
        insured losses in a State with a qualified reinsurance program;
            (4) the loan complies with the requirements under 
        subsection (d) or (e), as applicable; and
            (5) the State demonstrates to the Secretary that it has the 
        ability to repay the loans.
    (c) Mandatory Assistance for Qualified Reinsurance Programs.--The 
Secretary shall upon the request of a qualified reinsurance program and 
subject to subsection (b), make a loan under subsection (d) or (e) for 
such program in the amount requested by such program (subject to the 
limitations under subsections (d)(2) and (e)(2), respectively).
    (d) Liquidity Loans.--A loan under this subsection for a qualified 
reinsurance program shall be subject to the following requirements:
            (1) Preconditions.--The Secretary shall have determined 
        that the qualified reinsurance program--
                    (A) has a capital liquidity shortage, in accordance 
                with regulations that the Secretary shall establish; 
                and
                    (B) cannot access capital in the private markets at 
                a commercially reasonable rate.
            (2) Amount.--The principal amount of the loan may not 
        exceed the ceiling coverage level for the qualified reinsurance 
        program.
            (3) Rate of interest.--The loan shall bear interest at an 
        annual rate 3 percentage points higher than marketable 
        obligations of the Treasury having the same term to maturity as 
        the loan and issued during the most recently completed month, 
        as determined by the Secretary, or such higher rate as may be 
        necessary to ensure that the amounts of interest paid under 
        such loans exceed the sum of the costs (as such term is defined 
        in section 502 of the Federal Credit Reform Act of 1990 (2 
        U.S.C. 661a)) of such loans, the administrative costs involved 
        in carrying out a program under this title for such loans, and 
        any incidental effects on governmental receipts and outlays.
            (4) Term.--The loan shall have a term to maturity of not 
        less than 5 years and not more than 10 years.
    (e) Catastrophic Loans.--A loan under this subsection for a 
qualified reinsurance program shall be subject to the following 
requirements:
            (1) Preconditions.--The Secretary shall have determined 
        that an event has resulted in insured losses in a State with a 
        qualified reinsurance program and that such insured losses in 
        such State are in excess of 150 percent of the aggregate amount 
        of direct written premium for property and casualty insurance, 
        for risks located in that State, over the calendar year 
        preceding such event, in accordance with regulations that the 
        Secretary shall establish.
            (2) Amount.--The principal amount of the loan made pursuant 
        to an event referred to in paragraph (1) may not exceed the 
        amount by which the insured losses sustained as a result of 
        such event exceed the ceiling coverage level for the qualified 
        reinsurance program.
            (3) Rate of interest.--The loan shall bear interest at an 
        annual rate 0.20 percentage points higher than marketable 
        obligations of the Treasury having a term to maturity of not 
        less than 10 years and issued during the most recently 
        completed month, as determined by the Secretary, or such higher 
        rate as may be necessary to ensure that the amounts of interest 
        paid under such loans exceed the sum of the costs (as such term 
        is defined in section 502 of the Federal Credit Reform Act of 
        1990 (2 U.S.C. 661a)) of such loans, the administrative costs 
        involved in carrying out a program under this title for such 
        loans, and any incidental effects on governmental receipts and 
        outlays.
            (4) Term.--The loan shall have a term to maturity of not 
        less than 10 years.
    (f) Use of Funds.--Amounts from a loan under this section shall 
only be used to provide reinsurance or retrocessional coverage to 
underlying primary insurers or reinsurers for losses arising from all 
personal residential lines of insurance, as defined in the Uniform 
Property & Casualty Product Coding Matrix published and maintained by 
the National Association of Insurance Commissioners. Such amounts shall 
not be used for any other purpose.

SEC. 203. REPORTS AND AUDITS.

    The Secretary shall submit a report to the President and the 
Congress annually that identifies and describes any loans made under 
this title during such year and any repayments during such year of 
loans made under this title, and describes actions taken to ensure 
accountability of loan funds. The Secretary shall provide for regular 
audits to be conducted for each loan made under this title and shall 
make the results of such audits publicly available.

SEC. 204. FUNDING.

    (a) Program Fee.--
            (1) In general.--The Secretary may establish and collect, 
        from qualified reinsurance programs that are precertified 
        pursuant to section 401(d), a reasonable fee, as may be 
        necessary to offset the expenses of the Secretary in connection 
        with carrying out the responsibilities of the Secretary under 
        this title, including--
                    (A) costs of developing, implementing, and carrying 
                out the program under this title; and
                    (B) costs of providing for precertification 
                pursuant to section 401(d) of State and regional 
                reinsurance programs as qualified reinsurance programs.
            (2) Adjustment.--The Secretary may, from time to time, 
        adjust the fee under paragraph (1) as appropriate based on 
        expenses of the Secretary referred to in such paragraph.
            (3) Use.--Any fees collected pursuant to this subsection 
        shall be credited as offsetting collections of the Department 
        of the Treasury and shall be available to the Secretary only 
        for expenses referred to in paragraph (1).
    (b) Costs of Loans; Administrative Costs.--To the extent that 
amounts of negative credit subsidy are received by the Secretary in any 
fiscal year pursuant to loans made under this title, such amounts shall 
be available for costs (as such term is defined in section 502 of the 
Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) of such loans and 
for costs of carrying out the program under this title for such loans.
    (c) Full Taxpayer Repayment.--The Secretary shall require the full 
repayment of all loans made under this title. If the Secretary 
determines at any time that such full repayment will not be made, or is 
likely not to be made, the Secretary shall promptly submit a report to 
the Congress explaining why such full repayment will not be made or is 
likely not to be made. The Secretary may not accept any repayment of 
any loan made under this title that does not comply with the agreement 
for such loan entered into in accordance with section 202(b)(1)(C).

   TITLE III--REINSURANCE COVERAGE FOR QUALIFIED REINSURANCE PROGRAMS

SEC. 301. PROGRAM AUTHORITY.

    Subject to section 304(c), the Secretary of the Treasury, shall 
make available for purchase, only by qualified reinsurance programs (as 
such term is defined in section 401), contracts for reinsurance 
coverage under this title.

SEC. 302. CONTRACT PRINCIPLES.

    Contracts for reinsurance coverage made available under this 
title--
            (1) shall not displace or compete with the private 
        insurance or reinsurance markets or the capital market;
            (2) shall minimize the administrative costs of the Federal 
        Government; and
            (3) shall provide coverage based solely on insured losses 
        covered by the qualified reinsurance program purchasing the 
        contract.

SEC. 303. TERMS OF REINSURANCE CONTRACTS.

    (a) Minimum Attachment Point.--Notwithstanding any other provision 
of this title, a contract for reinsurance coverage under this title for 
a qualified reinsurance program may not be made available or sold 
unless the contract requires that the qualified reinsurance program 
sustain an amount of retained losses from events in an amount, as 
determined by the Secretary, that is equal to the amount of losses 
projected to be incurred from a single event of such magnitude that it 
has a 0.5 percent chance of being equaled or exceeded in any year.
    (b) Ninety Percent Coverage of Insured Losses in Excess of Retained 
Losses.--Each contract for reinsurance coverage under this title shall 
provide that the amount paid out under the contract shall, subject to 
section 304, be equal to 90 percent of the amount of insured losses of 
the qualified reinsurance program in excess of the amount of retained 
losses that the contract requires, pursuant to subsection (a), to be 
incurred by such program.
    (c) Maturity.--The term of each contract for reinsurance coverage 
under this title shall not exceed 1 year or such other term as the 
Secretary may determine.
    (d) Payment Condition.--Each contract for reinsurance coverage 
under this title shall authorize claims payments to the qualified 
reinsurance program purchasing the coverage only for insured losses 
provided under the contract.
    (e) Multiple Events.--The contract shall cover any insured losses 
from one or more events that may occur during the term of the contract 
and shall provide that if multiple events occur, the retained losses 
requirement under subsection (a) shall apply on a calendar year basis, 
in the aggregate and not separately to each individual event.
    (f) Timing of Claims.--Claims under a contract for reinsurance 
coverage under this title shall include only insurance claims that are 
reported to the qualified reinsurance program within the 3-year period 
beginning upon the event or events for which payment under the contract 
is provided.
    (g) Actuarial Pricing.--The price of coverage under a reinsurance 
contract under this title shall be an amount, established by the 
Secretary at a level that annually produces expected premiums that 
shall be sufficient to pay the reasonably anticipated cost of all 
claims, loss adjustment expenses, all administrative costs of 
reinsurance coverage offered under this title, and any such outwards 
reinsurance, as described in section 305(c)(3), as the Secretary 
considers prudent taking into consideration the demand for reinsurance 
coverage under this title and the limits specified in section 304.
    (h) Information.--Each contract for reinsurance coverage under this 
title shall contain a condition providing that the Secretary may 
require the qualified reinsurance program that is covered under the 
contract to submit to the Secretary all information on the qualified 
reinsurance program relevant to the duties of the Secretary under this 
title.
    (i) Others.--Contracts for reinsurance coverage under this title 
shall contain such other terms as the Secretary considers necessary to 
carry out this title and to ensure the long-term financial integrity of 
the program under this title.

SEC. 304. MAXIMUM FEDERAL LIABILITY.

    (a) In General.--Subject to subsection (b) and notwithstanding any 
other provision of law, the aggregate potential liability for payment 
of claims under all contracts for reinsurance coverage under this title 
sold in any single year by the Secretary shall not exceed 
$200,000,000,000 or such lesser amount as is determined by the 
Secretary based on review of the market for reinsurance coverage under 
this title.
    (b) Limitation.--The authority of the Secretary to enter into 
contracts for reinsurance coverage under this title shall be effective 
for any fiscal year only to such extent or in such amounts as are or 
have been provided in appropriation Acts for such fiscal year for the 
aggregate potential liability for payment of claims under all contracts 
for reinsurance coverage under this title.

SEC. 305. FEDERAL NATURAL CATASTROPHE REINSURANCE FUND.

    (a) Establishment.--There is established within the Treasury of the 
United States a fund to be known as the Federal Natural Catastrophe 
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 title;
            (2) any amounts appropriated under section 304; and
            (3) any amounts earned on investments of the Fund pursuant 
        to subsection (d).
    (c) Uses.--Amounts in the Fund shall be available to the Secretary 
only for the following purposes:
            (1) Contract payments.--For payments to purchasers covered 
        under contracts for reinsurance coverage for eligible losses 
        under such contracts.
            (2) Administrative expenses.--To pay for the administrative 
        expenses incurred by the Secretary in carrying out the 
        reinsurance program under this title.
            (3) Outwards reinsurance.--To obtain retrocessional or 
        other reinsurance coverage of any kind to cover risk reinsured 
        under contracts for reinsurance coverage made available under 
        this title.
    (d) 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.

SEC. 306. REGULATIONS.

    The Secretary shall issue any regulations necessary to carry out 
the program for reinsurance coverage under this title.

                      TITLE IV--GENERAL PROVISIONS

SEC. 401. QUALIFIED REINSURANCE PROGRAMS.

    (a) In General.--For purposes of this Act only, a program shall be 
considered to be a qualified reinsurance program if the program--
            (1) is authorized by State law for the purposes described 
        in this section;
            (2) is an entity in which the authorizing State maintains a 
        material, financial interest;
            (3) provides reinsurance or retrocessional coverage to 
        underlying primary insurers or reinsurers for losses arising 
        from all personal residential lines of insurance, as defined in 
        the Uniform Property & Casualty Product Coding Matrix published 
        and maintained by the National Association of Insurance 
        Commissioners;
            (4) has a governing body, a majority of whose members are 
        public officials;
            (5) provides reinsurance or retrocessional coverage to 
        underlying primary insurers or reinsurers for losses in excess 
        of such amount that the Secretary has determined represents a 
        catastrophic event in that particular State;
            (6) is authorized by a State that has in effect such laws, 
        regulations, or other requirements, as the Secretary shall by 
        regulation provide, that--
                    (A) ensure, to the extent that reinsurance coverage 
                made available under the qualified reinsurance program 
                results in any cost savings in providing insurance 
                coverage for risks in such State, such cost savings are 
                reflected in premium rates charged to consumers for 
                such coverage;
                    (B) require that an appropriate public body within 
                the State shall have adopted adequate mitigation 
                measures (with effective enforcement provisions) which 
                the Secretary finds are consistent with the criteria 
                for construction described in the International Code 
                Council building codes;
                    (C) require State authorized insurance entities 
                within that State to establish an insurance rate 
                structure that takes into account measures to mitigate 
                insurance losses;
                    (D) require State authorized insurance and 
                reinsurance entities within that State to establish 
                rates at a level that annually produces expected 
                premiums that shall be sufficient to pay the reasonably 
                anticipated cost of all claims, loss adjustment 
                expenses, and all administrative costs of the insurance 
                or reinsurance coverage offered by such entities, and 
                any such outwards reinsurance as the program 
                administrator deems prudent; and
                    (E) discourage price gouging in any disaster area 
                located within the State;
            (7) to the extent possible, seeks to encourage appropriate 
        State and local government units to develop comprehensive land 
        use and zoning plans that include natural hazard mitigation;
            (8) to the extent possible, seeks to avoid cross-
        subsidization between any separate property and casualty lines 
        covered under the State authorized insurance or reinsurance 
        entity;
            (9) complies with the risk-based capital requirements under 
        subsection (b);
            (10) complies with such additional organizational, 
        underwriting, and financial requirements as the Secretary 
        shall, by regulation, provide to carry out the purposes of this 
        Act; and
            (11) has been certified by the Secretary, for such year, in 
        accordance with an annual certification process established by 
        the Secretary for such purpose, as being in compliance with the 
        requirements under paragraphs (1) through (10).
    (b) Risk-Based Capital Requirements.--
            (1) In general.--Except for programs deemed to be qualified 
        reinsurance programs pursuant to subsection (c), each qualified 
        reinsurance program shall maintain risk-based capital in 
        accordance with requirements established by the Secretary, in 
        consultation with the National Association of Insurance 
        Commissioners and consistent with the Risk-Based Capital Model 
        Act of the National Association of Insurance Commissioners, and 
        take into consideration asset risk, credit risk, underwriting 
        risk, and such other relevant risk as determined by the 
        Secretary.
            (2) Treatment of access to liquidity loans.--
                    (A) In general.--To the extent that a qualified 
                reinsurance program is deficient in complying with any 
                aspect of the risk-based capital requirements 
                established pursuant to this subsection, the Secretary 
                shall recognize and give credit for the ability of such 
                qualified reinsurance program to access capital through 
                the liquidity loan program established under section 
                202(d).
                    (B) Annual diminution.--The extent of credit 
                recognized and given for a qualified reinsurance 
                program pursuant to subparagraph (A) shall diminish 
                annually in a proportion equal to the earned premium 
                for the program for the prior calendar year.
                    (C) Reset upon occurrence of catastrophe.--To the 
                extent that a qualified reinsurance program is 
                obligated to pay losses as a result of the occurrence 
                of a catastrophe, the Secretary shall increase the 
                credit recognized and given for the program pursuant to 
                subparagraph (A) by an amount equal to the losses paid 
                by the program as a result of the catastrophe.
                    (D) Resumption after catastrophe.--After a reset 
                occurs pursuant to subparagraph (C) for a qualified 
                reinsurance program, the diminution described in 
                subparagraph (B) shall resume and continue until the 
                program has accumulated capital sufficient to satisfy 
                the risk-based capital requirement determined by the 
                Secretary to be appropriate given the ceiling coverage 
                level of that particular qualified reinsurance program.
            (3) Report.--For each calendar year, each qualified 
        reinsurance program shall prepare and submit to the Secretary a 
        report identifying its risk based capital, at such time after 
        the conclusion of such year, and containing such information 
        and in such form, as the Secretary shall require.
    (c) Transitional Mechanisms.--For the five-year period beginning on 
the date of the enactment of this Act, in the case of a State that does 
not have a qualified reinsurance program for the State, a State 
residual insurance market entity, or State-sponsored provider of 
natural catastrophe insurance, for such State shall be considered to be 
a qualified reinsurance program, but only if such State residual 
insurance market entity, or State-sponsored provider of natural 
catastrophe insurance, was in existence before such date of enactment.
    (d) Precertification.--The Secretary shall establish procedures and 
standards for State and regional reinsurance programs and the State 
residual insurance market entities described in section (b) to apply to 
the Secretary at any time for certification (and recertification) as 
qualified reinsurance programs.
    (e) Reinsurance To Cover Exposure.--This section may not be 
construed to limit or prevent any insurer from obtaining reinsurance 
coverage for insured losses retained by insurers pursuant to this 
section, nor shall the obtaining of such coverage affect the 
calculation of the amount of any loan under this title.

SEC. 402. STUDY AND CONDITIONAL COVERAGE OF COMMERCIAL RESIDENTIAL 
              LINES OF INSURANCE.

    (a) Study.--The Secretary shall study, on an expedited basis, the 
need for and impact of expanding the programs established by this Act 
to apply to insured losses of qualified reinsurance programs for losses 
arising from all commercial insurance policies which provide coverage 
for properties that are composed predominantly of residential rental 
units. The Secretary shall consider the catastrophic insurance and 
reinsurance market for commercial residential properties, and 
specifically the availability of adequate private insurance coverage 
when an insured event occurs, the impact any such capacity restrictions 
has on housing affordability for renters, and the likelihood that such 
an expansion of the program would increase insurance capacity for this 
market segment.
    (b) Conditional Coverage.--To the extent that the Secretary 
determines that there is such a need to expand such programs and such 
expansion will be effective in increasing insurance capacity for the 
commercial residential insurance market, the Secretary shall, in 
consultation with the National Association of Insurance Commissioners--
            (1) apply the provisions of this Act, as appropriate, to 
        insured losses of a qualified reinsurance program for losses 
        arising from commercial insurance policies which provide 
        coverage for properties that are composed predominantly of 
        residential rental units, as described in paragraph (a); and
            (2) provide such restrictions, limitations, or conditions 
        with respect to the programs under this Act that the Secretary 
        deems appropriate, based on the study under subsection (a).

SEC. 403. DEFINITIONS.

    For purposes of this Act, the following definitions shall apply:
            (1) Ceiling coverage level.--The term ``ceiling coverage 
        level'' means, with respect to a qualified reinsurance program, 
        the maximum liability that could be incurred at any time by the 
        qualified reinsurance program.
            (2) Insured loss.--The term ``insured loss'' means any loss 
        insured by a qualified reinsurance program.
            (3) Price gouging.--The term ``price gouging'' means the 
        providing of any consumer good or service by a supplier related 
        to repair or restoration of property damaged from a catastrophe 
        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 (not withstanding any real cost 
        increase due to any attendant business risk and other 
        reasonable expenses that result from the major catastrophe 
        involved), than the price charged by the supplier for such 
        consumer good or service immediately before the disaster.
            (4) Qualified reinsurance program.--The term ``qualified 
        reinsurance program'' means a State or regional program that 
        meets the requirements under section 401.
            (5) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.
            (6) State.--The term ``State'' includes the several States, 
        the District of Columbia, the Commonwealth of Puerto Rico, 
        Guam, the Commonwealth of the Northern Mariana Islands, the 
        United States Virgin Islands, and American Samoa.

SEC. 404. REGULATIONS.

    The Secretary shall issue such regulations as may be necessary to 
carry out this Act.

            Passed the House of Representatives November 8, 2007.

            Attest:

                                                                 Clerk.
110th CONGRESS

  1st Session

                               H. R. 3355

_______________________________________________________________________

                                 AN ACT

 To ensure the availability and affordability of homeowners' insurance 
                   coverage for catastrophic events.