[Congressional Bills 111th Congress]
[From the U.S. Government Publishing Office]
[S. 886 Introduced in Senate (IS)]

111th CONGRESS
  1st Session
                                 S. 886

 To establish a program to provide guarantees for debt issued by State 
catastrophe insurance programs to assist in the financial recovery from 
                         natural catastrophes.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

                             April 23, 2009

  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 program to provide guarantees for debt issued by State 
catastrophe insurance programs to assist in the financial recovery from 
                         natural catastrophes.

    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 ``Catastrophe 
Obligation Guarantee Act''.
    (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. Establishment of debt guarantee program.
Sec. 4. Effect of guarantee.
Sec. 5. Eligible State programs.
Sec. 6. Full faith and credit.
Sec. 7. Fees for guarantees; amount; collection.
Sec. 8. Payment of losses.
Sec. 9. Budgetary impact.
Sec. 10. Regulations.
Sec. 11. Definitions.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--Congress finds that--
            (1) the United States has a history of catastrophic natural 
        disasters including earthquakes, hurricanes, tornadoes, fires, 
        and volcanic eruptions;
            (2) the United States needs to take and support State 
        actions to be better prepared for and better protected from 
        catastrophes;
            (3) the hurricane seasons of 2004, 2005, and 2008 were 
        startling reminders of both the human and economic devastation 
        that natural catastrophes can cause;
            (4) if the deadly 1900 Galveston hurricane were to occur 
        again it could cause over $36,000,000,000 in insured loss;
            (5) if the 1906 San Francisco earthquake and fire were to 
        occur again it could cause over $400,000,000,000 in insured 
        loss;
            (6) if a Category 5 hurricane were to hit Miami it could 
        cause over $50,000,000,000 in insured loss;
            (7) if the 1938 ``Long Island Express'' hurricane were to 
        occur again it could cause over $30,000,000,000 in insured 
        loss, and if a hurricane that powerful were to hit Manhattan 
        directly, it could cause over $150,000,000,000 in insured loss 
        and cause irreparable harm to our Nation's economy;
            (8) the inability of private insurers to build adequate 
        capital in a short amount of time and the resulting lack of 
        sufficient insurance capacity threaten to increase the number 
        of uninsured residential properties, which, in turn, will 
        increase the risk of mortgage and other credit defaults and 
        their strain on the Nation's banking system;
            (9) it is appropriate that efforts to improve insurance 
        availability be designed and implemented at the State level, 
        but even active and experienced State programs struggle with 
        issues of capital adequacy and financial strength;
            (10) some States have acted to ensure the continued 
        availability or affordability, or both, of residential property 
        insurance for their residents;
            (11) while State catastrophe insurance programs may be well 
        designed and adequate to cover insured losses from most natural 
        disasters, a small but significant number of catastrophic 
        events are likely to exceed the combined financial capacity of 
        such State programs and the local insurance markets;
            (12) today's historic financial-market turmoil calls into 
        question the ability of even the most creditworthy State 
        programs to secure adequate financing following a catastrophic 
        event;
            (13) making available Federal guarantees to enhance the 
        capability of eligible State programs to issue debt will 
        minimize the exposure of State and Federal taxpayers who 
        otherwise may bear the consequences of underfunded programs or 
        under-insured communities following catastrophic events, 
        especially during today's historic market turmoil; and
            (14) it is the proper role of the Federal Government to 
        prepare for and protect its citizens from catastrophes and to 
        facilitate consumer protection, victim assistance, and 
        recovery, including financial recovery.
    (b) Purposes.--The purposes of this Act are to establish a 
program--
            (1) to promote the availability of private capital to 
        provide liquidity and capacity to State catastrophe insurance 
        programs; and
            (2) to expedite the payment of claims under State 
        catastrophe insurance programs and better assist the financial 
        recovery from significant natural catastrophes by authorizing 
        the Secretary of the Treasury to guarantee debt for such 
        purposes.

SEC. 3. ESTABLISHMENT OF DEBT GUARANTEE PROGRAM.

    (a) Authority of Secretary.--The Secretary is authorized and shall 
have the powers and authorities necessary to guarantee, and to enter 
into commitments to guarantee, holders of debt against loss of 
principal or interest, or both, on any such debt issued by eligible 
State programs for purposes of this Act, provided that the total 
principal amount of debt obligations guaranteed by the Secretary--
            (1) for eligible State programs that cover earthquake peril 
        shall not exceed $5,000,000,000; and
            (2) for eligible State programs that cover all other perils 
        shall not exceed $20,000,000,000.
    (b) Funding.--
            (1) Federal payments.--Subject to paragraphs (1) and (2) of 
        subsection (a), there are hereby appropriated, out of funds in 
        the Treasury not otherwise appropriated, such sums as may be 
        necessary to satisfy debt guarantee commitments extended to 
        eligible State programs under this Act.
            (2) Administrative expenses.--Any funds expended or 
        obligated by the Secretary for the payment of administrative 
        expenses for conduct of the guarantee program authorized by 
        this Act shall be deemed appropriated at the time of such 
        expenditure or obligation.
    (c) Conditions for Guarantee Eligibility.--A debt guarantee under 
this section may be made only if the Secretary has issued a commitment 
to guarantee to an eligible State program. The commitment to guarantee 
shall be for a period of 3 years and may be extended by the Secretary 
for a period of 1 year on each annual anniversary of the issuance of 
the commitment to guarantee. The commitment to guarantee and each 
extension of such commitment may be issued by the Secretary only if the 
following requirements are satisfied:
            (1) The eligible State program submits to the Secretary a 
        report setting forth, in such form and including such 
        information as the Secretary shall require, how the eligible 
        State program plans to repay the debt.
            (2) Based upon the eligible State program's report 
        submitted pursuant to paragraph (1), the Secretary determines 
        there is reasonable assurance that the eligible State program 
        can meet its repayment obligation under the debt.
            (3) The eligible State program enters into an agreement 
        with the Secretary, as the Secretary shall require, that the 
        eligible State program 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 debt.
            (4) The commitment to guarantee shall specify the fees for 
        debt guarantee coverage.
            (5) The maximum term of the debt that shall be specified in 
        a commitment issued under this section may not exceed 30 years.
    (d) Mandatory Assistance for Eligible State Programs.--The 
Secretary shall upon the request of an eligible State program and 
pursuant to a commitment to guarantee issued under subsection (c), 
provide a guarantee under subsection (e) for such eligible State 
program in the amount requested by such eligible State program, subject 
to the limitation under subsection (e)(2).
    (e) Catastrophic Debt Guarantee.--A debt guarantee under this 
subsection for an eligible State program shall be subject to the 
following requirements:
            (1) Preconditions.--The eligible State program shows to the 
        satisfaction of the Secretary that insured losses in the State 
        to the eligible State program arising from the event or events 
        covered by the commitment to guarantee are likely to exceed the 
        eligible State program's available cash resources, as 
        calculated on the date of the event.
            (2) Amount.--The aggregate principal amount of the debt 
        guaranteed following an event or events referred to in 
        paragraph (1) may not exceed the amount by which the insured 
        losses expected to be sustained by the State program as a 
        result of such event or events exceed 80 percent of the 
        qualifying assets of the eligible State program as stated in 
        the most recent quarterly financial statement filed with the 
        domiciliary regulator of the program prior to the event or 
        events, except that, for eligible State programs that are not 
        required to file such quarterly financial statements, the 
        aggregate principal amount of the debt guaranteed may not 
        exceed the amount by which insured losses sustained by the 
        State program as a result of such event or events exceed 80 
        percent of the unrestricted net assets as stated in the annual 
        financial statement for the program's fiscal year ending 
        immediately prior to the event or events.
            (3) Use of funds.--Amounts of debt guaranteed under this 
        section shall be used only to pay the costs of issuing debt and 
        to pay the insured losses and loss adjustment expenses incurred 
        by an eligible State program. Such amounts shall not be used 
        for any other purpose.

SEC. 4. EFFECT OF GUARANTEE.

    The issuance of any guarantee by the Secretary under this Act shall 
be conclusive evidence that--
            (1) the guarantee has been properly obtained;
            (2) the underlying debt qualified for such guarantee; and
            (3) the guarantee is valid, legal, and enforceable.

SEC. 5. ELIGIBLE STATE PROGRAMS.

    (a) Eligible State Programs.--A State program shall be considered 
an ``eligible State program'' for purposes of this Act if the State 
program or the other State entity authorized to make such 
determinations certifies to the Secretary, in accordance with the 
procedures established under subsection (b), that the State program 
complies with the following requirements:
            (1) State program design.--The State program is established 
        and authorized by State law--
                    (A) as an insurance program that offers residential 
                property insurance coverage for insured losses to 
                property, contents, and additional living expenses, and 
                which is not a State program that requires insurers to 
                pool resources to provide property insurance coverage 
                for covered perils; or
                    (B) as a reinsurance program that is designed to 
                improve private insurance markets and that offers 
                residential property insurance coverage for insured 
                losses to property, contents, and additional living 
                expenses because of a finding by the State insurance 
                commissioner or other State entity authorized to make 
                such a determination that such State program is 
                necessary in order to provide for the continued 
                availability of such insurance coverage for all 
                residents of the State.
            (2) Operation.--The State program shall meet the following 
        requirements:
                    (A) A majority of the members of the governing body 
                of the State program shall be public officials or 
                appointed by public officials.
                    (B) The State shall have a financial interest in 
                the State program.
                    (C) If the State has at any time appropriated 
                amounts from the State program's funds for any purpose 
                other than payments for losses insured under the State 
                program, or payments made in connection with any of the 
                State program's authorized activities, the State shall 
                have returned such amounts to the State fund, together 
                with interest on such amounts.
            (3) Tax status.--The State program shall have received from 
        the Secretary (or the Secretary's designee) a written 
        determination, within the meaning of section 6110(b) of the 
        Internal Revenue Code of 1986, that the State program either--
                    (A) constitutes an ``integral part'' of the State 
                that has created it; or
                    (B) is otherwise exempt from Federal income 
                taxation.
            (4) Covered perils.--
                    (A) For state programs.--The State program shall 
                insure or reinsure losses that are proximately caused 
                by any of the following perils:
                            (i) Earthquakes.
                            (ii) Perils ensuing from earthquakes, 
                        including fire and tsunamis.
                            (iii) Tropical cyclones having maximum 
                        sustained winds of at least 74 miles per hour, 
                        including hurricanes and typhoons.
                            (iv) Tornadoes.
                            (v) Volcanic eruptions.
                            (vi) Catastrophic winter storms.
                            (vii) Hail.
                            (viii) Any other natural catastrophe (not 
                        including any flood) insured or reinsured under 
                        the State program.
                    (B) Authority of the secretary to define.--The 
                Secretary shall, by regulation, define the natural 
                catastrophe perils under this subsection.
            (5) Earnings.--The State program may not provide for any 
        distribution of any part of any net profits of the State 
        program to any insurer that participates in the State program.
            (6) Prevention and mitigation.--
                    (A) Mitigation of losses.--The State program shall 
                include provisions designed to encourage and support 
                programs to mitigate losses from natural catastrophes 
                for which the State insurance or reinsurance program 
                was established to provide insurance coverage.
                    (B) Operational requirements.--The State program 
                shall operate in a State that--
                            (i) has in effect and enforces, or the 
                        appropriate local governments within the State 
                        have in effect and enforce, nationally 
                        recognized model building, fire, and safety 
                        codes and consensus-based standards that offer 
                        risk responsive resistance that is 
                        substantially equivalent to or greater than the 
                        resistance to earthquakes or high winds; and
                            (ii) has taken actions to establish an 
                        insurance rate structure that takes into 
                        account measures to mitigate insured losses.
            (7) Requirements regarding coverage.--The State program--
                    (A) may not, except for charges or assessments 
                related to post-event financing or bonding, involve 
                cross-subsidization between any separate property and 
                casualty insurance lines covered under the State 
                program pursuant to paragraph (1);
                    (B) shall be subject to a requirement under State 
                law that for any insurance coverage made available 
                under the State insurance program or for any 
                reinsurance coverage for such insurance coverage made 
                available under the State reinsurance program, the 
                premium rates charged shall be actuarially sound or 
                actuarially indicated; and
                    (C) shall make available to all qualifying 
                policyholders insurance or reinsurance coverage, as 
                applicable, and mitigation services on a basis that is 
                not unfairly discriminatory.
    (b) Annual Certification.--The Secretary shall establish procedures 
for initial certification and annual recertification as an eligible 
State program.

SEC. 6. FULL FAITH AND CREDIT.

    The full faith and credit of the United States is pledged to the 
payment of all guarantees issued under this Act with respect to 
principal and interest.

SEC. 7. FEES FOR GUARANTEES; AMOUNT; COLLECTION.

    The Secretary shall charge and collect fees for each guarantee in 
amounts specified in the commitment to guarantee, which shall be in 
amounts sufficient in the judgment of the Secretary st the time of 
issuance of the commitment to guarantee to cover applicable 
administrative costs and probable losses on the guaranteed obligations 
covered by the commitment to guarantee, but in any event not to exceed 
one-half of 1 per centum per annum of the outstanding indebtedness 
covered by each guarantee.

SEC. 8. PAYMENT OF LOSSES.

    (a) In General.--The Secretary agrees to pay to the duly appointed 
paying agent or trustee (in this section referred to as the ``Fiscal 
Agent'') for the eligible State program that portion of the principal 
and interest on any debt guaranteed under this Act that shall become 
due for payment but shall be unpaid by the eligible State program as a 
result of such program having provided insufficient funds to the Fiscal 
Agent to make such payments. The Secretary shall make such payments on 
the date such principal or interest becomes due for payment or on the 
business day next following the day on which the Secretary shall 
receive notice of failure on the part of the eligible State program to 
provide sufficient funds to the Fiscal Agent to make such payments, 
whichever is later. Upon making such payment, the Secretary shall be 
subrogated to all the rights of the ultimate recipient of the payment. 
The Secretary shall be entitled to recover from the eligible State 
program the amount of any payments made pursuant to any guarantee 
entered into under this Act.
    (b) Role of the Attorney General.--The Attorney General shall take 
such action as may be appropriate to enforce any right accruing to the 
United States as a result of the issuance of any guarantee under this 
Act.
    (c) Rule of Construction.--Nothing in this section shall be 
construed to preclude any forbearance for the benefit of the eligible 
State program which may be agreed upon by the parties to the guaranteed 
debt and approved by the Secretary, provided that budget authority for 
any resulting cost, as such term is defined under the Federal Credit 
Reform Act of 1990, is available.
    (d) Right of the Secretary.--Notwithstanding any other provision of 
law relating to the acquisition, handling, or disposal of property by 
the United States, the Secretary shall have the right in the discretion 
of the Secretary to complete, recondition, reconstruct, renovate, 
repair, maintain, operate, or sell any property acquired by the 
Secretary pursuant to the provisions of this Act.

SEC. 9. BUDGETARY IMPACT.

    (a) Costs.--For purposes of section 502(5) of the Federal Credit 
Reform Act of 1990, the cost of guarantees to be issued under this Act 
shall be calculated by adjusting the discount rate in section 502(5)(E) 
of such Act for market risk.
    (b) Scoring.--For purposes of the Budget Scoring Rules of the 
Senate and the House of Representatives, the cost of the guarantees to 
be issued under this Act shall be no greater than the discounted cost 
calculated under subsection (a) reduced by all projected fees and other 
income under this Act.

SEC. 10. REGULATIONS.

    The Secretary shall issue any regulations necessary to carry out 
the debt-guarantee program established under this Act.

SEC. 11. DEFINITIONS.

    In this Act, the following definitions shall apply:
            (1) Commitment to guarantee.--The term ``commitment to 
        guarantee'' means a commitment to make debt guarantees to an 
        eligible State program pursuant to subsection 3(c).
            (2) Covered perils.--The term ``covered perils'' means 1 or 
        more of the natural catastrophe perils enumerated in section 
        5(a)(4).
            (3) Disaster area.--The term ``disaster area'' means a 
        geographical area, with respect to which--
                    (A) an event of a covered peril specified in 
                section 5(a)(4) has occurred; and
                    (B) a declaration that a disaster exists as a 
                result of the occurrence of such peril has been made by 
                the President of the United States.
            (4) Eligible state program.--The term ``eligible State 
        program'' means a State program that, pursuant to section 5, is 
        eligible to receive a debt guarantee under this Act.
            (5) Insured loss.--The term ``insured loss'' means any loss 
        resulting from a covered peril that is determined by an 
        eligible State program as being covered by insurance or 
        reinsurance made available under that eligible State program.
            (6) Qualifying assets.--The term ``qualifying assets'' 
        means the policyholder surplus of the eligible State program as 
        stated in the most recent quarterly financial statement filed 
        by the program with the domiciliary regulator of the program in 
        the last quarter ending prior to the event or events.
            (7) Residential property insurance.--The term ``residential 
        property insurance'' means insurance coverage for--
                    (A) individually owned residential structures of 
                not more than 4 dwelling units, individually owned 
                condominium units, or individually owned mobile homes, 
                and their contents, located in the State and used 
                exclusively for residential purposes or a tenant's 
                policy written to include personal contents of a 
                residential unit located in the State, but shall not 
                include--
                            (i) insurance for real property or its 
                        contents used for any commercial, industrial, 
                        or business purpose, except a structure of not 
                        more than 4 dwelling units rented for 
                        individual residential purposes; or
                            (ii) a policy that does not include any of 
                        the perils insured against in a standard fire 
                        policy or any of the perils enumerated in 
                        section 5(a)(4); or
                    (B) commercial residential property, which includes 
                property owned by a condominium association or its 
                members, property owned by a cooperative association, 
                or an apartment building.
            (8) Secretary.--The term ``Secretary'' means the Secretary 
        of the Department of Treasury.
            (9) State.--The term ``State'' means each of the several 
        States of the United States, the District of Columbia, the 
        Commonwealth of Puerto Rico, the Commonwealth of the Northern 
        Mariana Islands, Guam, the United States Virgin Islands, 
        American Samoa, and any other territory or possession of the 
        United States.
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