[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[S. 1813 Introduced in Senate (IS)]

113th CONGRESS
  1st Session
                                S. 1813

 To establish a program to provide guarantees for debt issued by or on 
    behalf of State catastrophe insurance programs to assist in the 
   financial recovery from earthquakes and earthquake-related events.


_______________________________________________________________________


                   IN THE SENATE OF THE UNITED STATES

            December 12 (legislative day, December 11), 2013

 Mrs. Feinstein (for herself and Mrs. Boxer) 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 or on 
    behalf of State catastrophe insurance programs to assist in the 
   financial recovery from earthquakes and earthquake-related events.

    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 ``Earthquake 
Insurance Affordability 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. 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.
Sec. 12. Reports.

SEC. 2. FINDINGS AND PURPOSES.

    (a) Findings.--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 banking system of the United States.
            (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) 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 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.

SEC. 3. 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 section 5.
            (2) Eligible state program.--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) Insured loss.--The term ``insured loss'' means any loss 
        resulting from an earthquake or earthquake-related event that 
        is determined by an eligible State program to be covered by 
        insurance made available under that eligible State program.
            (4) 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 an insured-loss triggering 
        event or events.
            (5) 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 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) Secretary.--The term ``Secretary'' means the Secretary 
        of the Treasury.
            (7) 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.

SEC. 4. 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 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--
                    (A) shall be 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
                    (B) may not require insurers to pool resources to 
                provide property insurance coverage for earthquakes.
            (2) Operation.--
                    (A) Public officials.--A majority of the members of 
                the governing body of the State program shall be public 
                officials or appointed by public officials.
                    (B) State financial interest.--The State shall have 
                a financial interest in the State program.
                    (C) Repayment of appropriated amounts.--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) 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.
            (5) Loss prevention and mitigation.--
                    (A) Mitigation of losses.--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) Operational requirements.--The State program 
                shall operate in a State--
                            (i) that has in effect and enforces, or 
                        within which the appropriate local governments 
                        have in effect and enforce, nationally 
                        recognized building, seismic-design, and safety 
                        codes and consensus-based standards; and
                            (ii) that has taken actions to establish an 
                        insurance rate structure that takes into 
                        account measures to mitigate insured losses.
            (6) 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 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--
                            (i) shall be actuarially sound;
                            (ii) may not be excessive, inadequate, or 
                        unfairly discriminatory;
                            (iii) shall be established based on the 
                        best available scientific information for 
                        assessing the risk of earthquake frequency, 
                        severity, and loss; and
                            (iv) shall incorporate, and may not in the 
                        aggregate be less than, the sum of the modeled 
                        expected loss, risk financing costs, loss 
                        adjustment expense, and any other expenses 
                        necessary to operate the State program; and
                    (C) shall make available to all qualifying 
                policyholders insurance coverage 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 of a State program 
as an eligible State program.

SEC. 5. ESTABLISHMENT OF DEBT-GUARANTEE PROGRAM.

    (a) Authority of Secretary.--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 Guarantees.--The 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 $3,000,000,000, including interest.
    (c) Funding.--
            (1) Appropriation of federal payments.--Subject 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) Certification fee.--Upon certification or 
        recertification as an eligible State program under section 4, a 
        State program shall be charged a certification fee that the 
        Secretary determines, at the time of certification or 
        recertification, is sufficient to cover--
                    (A) applicable administrative costs arising from 
                the 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 per 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) Rule of construction.--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 Eligibility.--A 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--
            (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, by considering 
        relevant criteria including--
                    (A) par amount of debt to be issued;
                    (B) use of debt proceeds;
                    (C) proposed debt structure;
                    (D) term of debt outstanding;
                    (E) ratio of premium income to expected debt 
                service;
                    (F) review of recent quarterly financial 
                statements; and
                    (G) review of any recent credit rating provided by 
                a nationally recognized statistical rating 
                organization, as defined in section 3(a) of the 
                Securities Exchange Act of 1934 (15 U.S.C. 78c(a));
            (3) the eligible State program enters into an agreement 
        with the Secretary, as the Secretary shall require, that the 
        eligible State program--
                    (A) 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;
                    (B) will, to the extent prudent, use any authority 
                or capacity to surcharge policyholders or policies of 
                coverage to contribute to repaying the debt guaranteed 
                under this subsection; and
                    (C) will apply annually, except in years in which 
                the debt is being repaid, an amount not less than 2 
                percent of the debt subject to the agreement toward a 
                combination of--
                            (i) mitigation initiatives; and
                            (ii) public education regarding the risks 
                        of earthquakes and earthquake-related events;
            (4) the commitment to guarantee specifies and requires the 
        payment of the fees for debt guarantee coverage; and
            (5) the maximum term of the debt specified in the 
        commitment to guarantee does not exceed 30 years.
    (e) 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 (d), 
provide a guarantee under subsection (f) for the eligible State program 
in the amount requested by the eligible State program.
    (f) Catastrophe 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 shall 
        demonstrate 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) Use of funds.--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.
            (3) Limit on guarantee for events relating to a single 
        earthquake.--The amount of a debt guarantee that an eligible 
        State program receives to secure or provide claim-payment 
        capacity for paying the insured losses and loss adjustment 
        expenses from all events relating to a single earthquake may 
        not be greater than $1,500,000,000.

SEC. 6. 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. 7. ASSESSMENT AT TIME OF GUARANTEE.

    If the Secretary determines that the fees collected under section 
5(c)(2) will not cover applicable administrative costs for, and 
probable losses on, a guaranteed obligation, the Secretary shall charge 
and collect a fee for each guarantee issued in an amount that the 
Secretary determines, at the time of issuance of the guarantee, is 
sufficient to cover such costs and probable losses.

SEC. 8. PAYMENT OF LOSSES.

    (a) Payment by Secretary.--
            (1) In general.--The Secretary shall pay to the duly 
        appointed paying agent or trustee (in this section referred to 
        as the ``Fiscal Agent'') for an eligible State program that 
        portion of the principal and interest on any debt guaranteed 
        under this Act that becomes due for payment but is unpaid by 
        the eligible State program as a result of the eligible State 
        program having provided insufficient funds to the Fiscal Agent 
        to make the payment.
            (2) Time of payment.--The Secretary shall make a payment 
        described in paragraph (1) on the later of--
                    (A) the date on which the principal or interest 
                becomes due for payment; or
                    (B) the first business day after the date on which 
                the Secretary receives notice that the eligible State 
                program has failed to provide sufficient funds to the 
                Fiscal Agent to make the payment.
            (3) Subrogation of rights.--Upon making a payment under 
        this subsection, the Secretary shall be subrogated to all the 
        rights of the ultimate recipient of the payment.
            (4) Recovery from eligible state program.--The Secretary 
        shall be entitled to recover from an eligible State program the 
        amount of any payments made by the Secretary 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, 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) 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 (2 U.S.C. 661 et seq.), 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. 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. 10. BUDGETARY IMPACT; COSTS.

    For purposes of section 502(5) of the Federal Credit Reform Act of 
1990 (2 U.S.C. 661a(5)), 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.

SEC. 11. REGULATIONS.

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

SEC. 12. REPORTS.

    (a) In General.--Not later than 12 months after the date on which 
the Secretary issues a guarantee under section 5 for debt issued by an 
eligible State program, and annually thereafter, the eligible State 
program shall submit to the Secretary and to Congress a report, in a 
form prescribed by the Secretary, that contains the information 
required under subsection (b).
    (b) Contents.--A report under this section shall describe, with 
respect to the reporting year--
            (1) the benefits that the eligible State program derived 
        from the debt-guarantee; and
            (2) the manner in which the eligible State program applied 
        2 percent of the guarantee amount for the purposes described in 
        section 5(d)(3)(C).
    (c) Limitation.--To the extent practicable, the Secretary shall 
limit the information required to be included in a report under this 
section to information that is otherwise publicly available.
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