1.Short
title; table of contents
(a)This Act may be cited
as the Catastrophe Obligation
Guarantee Act
.
(b)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.
2.
(a)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)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.
3.Establishment of
debt guarantee program
(a)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)
(1)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)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 eligibilityA 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 programsThe 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 guaranteeA debt guarantee under this subsection for an
eligible State program shall be subject to the following requirements:
(1)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)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)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.
4.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.
5.
(a)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)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)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)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)
(A)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 defineThe Secretary shall, by regulation,
define the natural catastrophe perils under this subsection.
(5)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)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)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 coverageThe 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)The Secretary shall establish procedures for
initial certification and annual recertification as an eligible State
program.
6.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.
7.Fees for
guarantees; amount; collectionThe 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.
8.
(a)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 GeneralThe 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)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)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.
9.
(a)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)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.
10.The Secretary shall issue any regulations
necessary to carry out the debt-guarantee program established under this
Act.
11.In this Act, the following definitions shall
apply:
(1)The term commitment to guarantee
means a
commitment to make debt guarantees to an eligible State program pursuant to
subsection 3(c).
(2)The term covered perils means 1 or more of
the natural catastrophe perils enumerated in section 5(a)(4).
(3)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)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)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)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 insuranceThe 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)The
term Secretary means the Secretary of the Department of
Treasury.
(9)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.