1.Short
title; table of contents
(a)This Act may be cited as the Earthquake Insurance Affordability
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. Definitions.
Sec. 4. Eligible State programs.
Sec. 5. Establishment of debt-guarantee program.
Sec. 6. Effect of guarantee.
Sec. 7. Assessment at time of guarantee.
Sec. 8. Payment of losses.
Sec. 9. Full faith and credit.
Sec. 10. Budgetary impact; costs.
Sec. 11. Regulations.
2.
(a)Congress
finds the following:
(1)Major earthquakes
are likely in the United States. For example, the United States Geological
Survey predicts that there is a 99.7 percent chance that a magnitude 6.7
earthquake will strike in California in the next 30 years and that there is a
46 percent chance that a magnitude 7.5 earthquake will strike in California in
the next 30 years. Earthquakes can be caused by volcanic or tectonic events and
result in destructive shaking of the earth, fires, landslides, volcanic
eruptions, and tsunamis.
(2)Despite the known
risk of earthquakes, relatively few homeowners have earthquake insurance. For
example, in California, 88 percent of homes insured for fire do not have
earthquake insurance. In the event of a catastrophic earthquake, the lack of
homeowner earthquake-insurance coverage will slow recovery, create economic
hardship, and increase the risk of mortgage and other credit defaults and
adversely affect the Nation’s banking system.
(3)It is important
that States improve the affordability, availability, and quality of earthquake
insurance so that more homeowners will purchase coverage. For example,
California has created the California Earthquake Authority to provide
earthquake insurance to homeowners through private-sector insurers.
(4)It is a proper
role of the Federal Government to help prepare and protect its citizens from
catastrophes such as earthquakes and to facilitate consumer protection, victim
assistance, and individual and community 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
earthquake insurance programs; and
(2)to expedite the
payment of claims under State earthquake insurance programs and better assist
the financial recovery from significant earthquakes by authorizing the
Secretary of the Treasury to guarantee debt for such purposes.
3.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
section 5.
(2)The term eligible State program means a
State program that, pursuant to section 4, is eligible to receive a debt
guarantee under this Act.
(3)The term insured loss means any loss resulting
from an earthquake, an earthquake-related event, or fire following an
earthquake that is determined by an eligible State program as being covered by
insurance made available under that eligible State program.
(4)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 an insured-loss
triggering event or events.
(5)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 a 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 earthquake policy; 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.
(6)The
term Secretary means the Secretary of the Treasury.
(7)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.
4.
(a)A State program shall be considered an eligible State
program for purposes of this Act if the State program or 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 as an earthquake 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 earthquakes.
(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)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.
(5)Loss prevention
and mitigation
(A)The State program shall include provisions designed to
encourage and support programs to mitigate losses for which the State insurance
program was established to provide insurance.
(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 building, seismic-design, and
safety codes and consensus-based standards; and
(ii)has taken
actions to establish an insurance rate structure that takes into account
measures to mitigate insured losses.
(6)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
offered under the State program pursuant to paragraph (1);
(B)shall be subject
to a requirement under State law that for earthquake insurance coverage made
available under the State insurance program the premium rates charged on such
insurance shall be actuarially sound; and
(C)shall make
available to all qualifying policyholders insurance coverage 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.
5.Establishment of
debt-guarantee program
(a)The Secretary is authorized and shall have the powers
and authorities necessary—
(1)to guarantee, and
to enter into commitments to guarantee, holders of debt against loss of
principal or interest, or both, on any debt issued by eligible State programs
for purposes of this Act; and
(2)to certify and
recertify State catastrophe insurance programs that cover earthquake peril to
become or remain eligible for the benefits of such a debt-guarantee
program.
(b)Limit on
outstanding debt guaranteeThe aggregate amount of debt covered
by the Secretary’s guarantees and commitments to guarantee for all eligible
State programs outstanding at any time shall not exceed $5,000,000,000,
including interest.
(c)
(1)Appropriation
of Federal paymentsSubject to subsection (b), 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)Upon certification or recertification as an eligible State
program under section 4(a) or 4(b), a State program shall be charged a
certification fee sufficient in the judgement of the Secretary at the time of
certification to cover—
(A)applicable
administrative costs arising from each certification or recertification,
including all pre-certification costs and a proportional share of the costs
arising from the administration of the program established under this Act, but
in any event not to exceed one-half of 1 percent annum of the aggregate
principal amount of the debt for which the eligible State program is issued a
guarantee commitment; and
(B)any probable
losses on the aggregate principal amount of the debt for which the eligible
State program is issued a guarantee commitment.
(3)Any funds expended or obligated by the Secretary for
the payment of administrative expenses for conduct of the debt-guarantee
program authorized by this Act shall be deemed appropriated at the time of such
expenditure or obligation from the certification and recertification fees
collected pursuant to paragraph (2).
(d)Conditions for
guarantee eligibilityA debt guarantee under this section may be
made only if the Secretary has issued a commitment to guarantee to a certified,
eligible State program. The commitment to guarantee shall be in force for a
period of 3 years from its initial issuance and may be extended by the
Secretary for 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 guarantee-eligible debt it may incur.
(2)Based on 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 such 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 and require the payment of the fees for debt guarantee
coverage.
(5)The maximum term
of the debt specified in a commitment issued under this section may not exceed
30 years.
(e)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 (d), provide a guarantee under subsection (f)
for such eligible State program in the amount requested by such eligible State
program, subject to the limitation under subsection (f)(2).
(f)Catastrophe
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 to the eligible State program arising from the event or events covered
by the commitment to guarantee are likely to exceed 80 percent of the eligible
State program’s qualifying assets available to pay claims, as calculated on the
date of the event and based on the eligible State program’s most recent
quarterly financial statement filed with its domiciliary regulator.
(2)Proceeds of debt guaranteed under this section shall be
used only to pay the costs of issuing debt and of securing or providing
claim-payment capacity for paying the insured losses and loss adjustment
expenses incurred by an eligible State program. Such amounts shall not be used
for any other purpose.
6.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.
7.Assessment at
time of guaranteeTo extent
not satisfied by the fees collected under section 5(c)(2), the Secretary shall
charge and collect fees for each guarantee issued in amounts sufficient in the
judgement of the Secretary at the time of issuance of the guarantee to cover
applicable administrative costs and probable losses on the guaranteed
obligations.
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 to 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, and to collect any and all
sums owing, 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.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.
10.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.
11.The Secretary shall issue any regulations
necessary to carry out the debt-guarantee program established under this
Act.