[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[S. 1461 Introduced in Senate (IS)]
113th CONGRESS
1st Session
S. 1461
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
August 1, 2013
Mr. Nelson 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 2013''.
(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 2013 through 2018.
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.
<all>