[Congressional Bills 110th Congress]
[From the U.S. Government Publishing Office]
[S. 2310 Introduced in Senate (IS)]







110th CONGRESS
  1st Session
                                S. 2310

  To establish a National Catastrophe Risks Consortium and a National 
  Homeowners' Insurance Stabilization Program, and for other purposes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                            November 6, 2007

  Mrs. Clinton (for herself and Mr. Nelson of Florida) introduced the 
 following bill; which was read twice and referred to the Committee on 
                  Banking, Housing, and Urban Affairs

_______________________________________________________________________

                                 A BILL


 
  To establish a National Catastrophe Risks Consortium and a National 
  Homeowners' Insurance Stabilization Program, 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; 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.
Sec. 3. Qualified reinsurance programs.
Sec. 4. Definitions.
Sec. 5. Regulations.
             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 State and regional 
                            reinsurance programs.
Sec. 203. Reports and audits.
Sec. 204. Funding.

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 (known as timing risk), 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 existing 
        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 insurers and reinsurers, if appropriately 
        backstopped themselves, can absorb catastrophic risk borne by 
        private insurers without bearing timing risk, and thus enable 
        all insurers (whether State-operated or privately owned) to 
        underwrite and price insurance without timing risk and in such 
        a way to encourage property owners to pay for the appropriate 
        insurance to protect themselves and to take steps to mitigate 
        against the risks of disaster by locally appropriate methods.
    (b) Purposes.--The purposes of this Act are to establish a program 
to provide a Federal backstop 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.

SEC. 3. 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 any new construction, substantial 
                rehabilitation, and renovation insured or reinsured by 
                the program complies with applicable State or local 
                government building, fire, and safety 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 expected 
                annualized cost of all claims, loss adjustment 
                expenses, and all administrative costs of reinsurance 
                coverage offered; and
                    (E) encourage State authorized insurance and 
                reinsurance entities within that State to establish 
                rates that do not involve cross-subsidization between 
                any separate property and casualty lines covered under 
                the State authorized insurance or reinsurance entity; 
                and
            (7) complies with such additional organizational, 
        underwriting, and financial requirements as the Secretary 
        shall, by regulation, provide to carry out the purposes of this 
        Act.
    (b) Transitional Mechanisms.--For the 5-year period beginning on 
the date of 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 for such State shall be considered to be a 
qualified reinsurance program, but only if such State residual 
insurance market entity was in existence before such date of enactment.
    (c) Precertification.--The Secretary shall establish procedures and 
standards for State and regional reinsurance programs and the State 
residual insurance market entities described in subsection (b) to apply 
to the Secretary at any time for certification (and recertification) as 
qualified reinsurance programs.
    (d) 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 Act.

SEC. 4. 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, under law, that could be incurred at any 
        time by the qualified reinsurance program.
            (2) Commission.--The term ``Commission'' means the National 
        Commission on Natural Catastrophe Preparation and Protection 
        established under title II.
            (3) Consortium.--The term ``Consortium'' means the National 
        Catastrophic Risk Consortium established under title I.
            (4) Insured loss.--The term ``insured loss'' means any loss 
        insured by a qualified reinsurance program.
            (5) Qualified reinsurance program.--The term ``qualified 
        reinsurance program'' means a State or regional program that 
        meets the requirements of section 3.
            (6) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.
            (7) 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. 5. REGULATIONS.

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

             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''.
    (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 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 
        and State residual insurance market entities;
            (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.

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 fewer than 3 members.
            (2) Chairperson.--The Secretary, 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 2 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 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 
provide incentive for 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 STATE AND REGIONAL 
              REINSURANCE PROGRAMS.

    (a) Contracts.--The Secretary may enter into a contract with a 
qualified reinsurance program to carry out this title, 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 State or regional 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; and
                    (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;
            (2) the program cannot access capital in the private 
        market, 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;
            (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) and or (e), as applicable; and
            (5) the loan is afforded the full faith and credit of the 
        State and 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 markets at effective 
                rates of interest lower than those provided in 
                paragraph (3).
            (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 privately issued 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 United States 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 real property or homeowners' 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 3(c), 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 3(c) 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 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.
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