[Congressional Record Volume 153, Number 48 (Tuesday, March 20, 2007)]
[Senate]
[Pages S3360-S3368]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MARTINEZ (for himself, Mr. Nelson of Florida, Mrs. Dole, 
        and Ms. Landrieu):
  S. 931. bill to establish the National Hurricane Research Initiative 
to improve hurricane preparedness, and for other purposes; to the 
Committee on Commerce, Science, and Transportation.
  Mr. NELSON of Florida. Mr. President, I am pleased to be joined by my 
colleague Senator Mel Martinez as we introduce a package of bills aimed 
at providing a comprehensive solution to strengthen our Nation's 
property and casualty insurance market. Without serious reform, the 
Federal Government will be forced to continue to spend billions of 
dollars of taxpayer money to cover the costs of natural disasters in 
the United States. Worse, without Federal action, property insurance 
soon will become more expensive and hard to find, preventing some 
consumers from insuring their homes and businesses.
  As we know all too well, the last few years have brought a 
devastating cycle of natural catastrophes in the United States. In 2004 
and 2005, we witnessed a series of powerful hurricanes that caused 
unthinkable human tragedy and property loss. Hurricanes Katrina and 
Rita alone caused over $200 billion in total economic losses, including 
insured and uninsured losses.
  In my own home State of Florida, eight catastrophic storms in fifteen 
months caused more than $31 billion in insured damages. Now Florida is 
witnessing skyrocketing insurance rates, insurance companies are 
canceling hundreds of thousands of policies, and Florida's State 
catastrophe fund is depleted.
  In short, the inability of our private markets to fully handle the 
fallout from natural disasters has made our Nation's property and 
casualty insurance marketplace unstable. This market instability 
repeatedly has forced the Federal Government to absorb billions of 
dollars in uninsured losses. This is a waste of taxpayer money, 
especially when we know there are ways to design the system to 
anticipate and plan for the financial impacts of catastrophes.
  As insurance companies struggle to maintain their businesses, costs 
are passed on to homeowners and small businesses in Florida and in 
other States. In essence, the people who can least afford it are being 
forced to bear the disproportionate share of the billions of dollars of 
losses caused by natural catastrophes.
  Many Floridians have seen their insurance bills double in the last 
few years. As I travel around Florida, I hear repeatedly from my 
constituents that they may soon be unable to afford property and 
casualty insurance. That is a frightening proposition for people living 
in a State where increasingly vicious hurricane seasons are predicted. 
I am sure we all agree--consumers never should be put in the untenable 
position of having to choose between purchasing insurance and 
purchasing other necessities.
  While our Nation's property and casualty insurance system is not yet 
broken, it's clear that Congress needs to act now to shore up the 
system. Private sector insurance is currently available to spread some 
catastrophe-related losses throughout the Nation and internationally, 
but most experts believe that there will be significant insurance and 
reinsurance shortages. These shortages could result in future dramatic 
rate increases for consumers and businesses and the unavailability of 
catastrophe insurance.
  Let me be clear: these issues will not just affect Florida or the 
coastal States. Natural catastrophes can strike anywhere in the 
country. For example, a major earthquake fault line runs through 
several of our Midwestern States. We also saw firsthand the devastating 
effects of a volcano eruption at Mount Saint Helens in Washington 
State.
  In the past few decades, major disasters have been declared in almost 
every State. As I mentioned earlier, the Federal Government has 
provided and will continue to provide billions of dollars and resources 
to pay for these catastrophic losses, at huge costs to all American 
taxpayers.
  Congress has struggled with these issues for decades. Although we 
have talked about these issues time and time again, nothing much has 
gotten accomplished. The most notable step Congress did take was to 
create a National Flood Insurance Program. But Congress needs to do 
much more. It's time for a comprehensive approach to solving our 
Nation's property and casualty insurance issues.
  These matters are usually within the purview of the States, and I 
cannot understate the importance of State-based solutions to these 
insurance issues. Nonetheless, the Federal Government also has a 
critical interest in ensuring appropriate and fiscally responsible risk 
management of catastrophes.
  For example, mortgages require reliable property insurance, and the 
unavailability of reliable property insurance would make most real 
estate transactions impossible. Moreover, the public health, safety, 
and welfare demand that structures damaged or destroyed in catastrophes 
be reconstructed as soon as possible.
  In order to help protect consumers and small businesses, today I join 
Senator Martinez to introduce this package of bills as part of a 
comprehensive approach to fixing our troubled insurance system. Let me 
summarize each of the bills and tell you how this integrated approach 
makes good policy sense.
  The first piece of legislation Senator Martinez and I are introducing 
today is the Homeowners Protection Act of 2007. This bill is a 
companion bill to legislation introduced by Florida Representatives 
Brown-Waite, Buchanan, and others.

[[Page S3361]]

  This bill would establish a Fund within the U.S. Department of 
Treasury, which would sell Federal catastrophe insurance to State 
catastrophe funds; like the fund I helped to set up in Florida. State 
catastrophe funds essentially act as reinsurance mechanisms for 
insurance companies who lack resources to compensate homeowners for 
their losses.

  Under this bill, State catastrophe funds would be eligible to 
purchase reinsurance from the Federal fund at sound rates. However, a 
State catastrophe fund would be prohibited from gaining access to the 
Federal fund until private insurance companies and the State 
catastrophe fund met their financial obligations.
  Why is this good for homeowners? Because this back-up mechanism will 
improve the solvency and capacity of homeowners' insurance markets, 
which will reduce the chance that consumers will lose their insurance 
coverage or be hit by huge premium increases.
  Importantly, the Homeowners Protection Act of 2007 also recognizes 
that part of the problem with our broken property and casualty 
insurance system lies with outdated building codes and mitigation 
techniques. Noted insurance experts and consumer groups have been 
pointing out this problem for many years. So, under the bill, the 
Secretary of the Treasury would establish an expert commission to 
assist States in developing mitigation, prevention, recovery, and 
rebuilding programs that would reduce the types of enormous damage we 
have seen caused by past hurricanes.
  I note that this bill covers not just hurricanes, but catastrophes 
such as tornados, earthquakes, cyclones, catastrophic winter storms, 
and volcanic eruptions. These are disasters that can--and do--occur in 
many different States. Again, every State and every taxpayer is 
affected by this problem, not just Florida.
  This bill has widespread support from a broad range of stakeholders, 
including ProtectingAmerica.org, a national coalition of first 
responders, businesses, and emergency managers. This organization is 
co-chaired by former FEMA director James Lee Witt, one of the most 
respected names in disaster prevention and preparedness.
  The second bill that Senator Martinez and I are introducing today is 
the Catastrophic Savings Accounts Act of 2007. This bill proposes 
changing the Federal tax code to allow homeowners to put money aside--
on a tax-free basis--to grow over time. If and when a catastrophe hits, 
a homeowner could take the accumulated savings out of the account to 
cover uninsured losses, deductible expenses, and building upgrades to 
mitigate damage that could be caused in future disasters. Homeowners 
could even reduce their insurance premiums because their tax-free 
savings would allow them to choose higher deductibles.
  The benefits of this approach are pretty straightforward and very 
consumer friendly. Homeowners would be encouraged to plan in advance 
for future disasters, and they wouldn't be taxed to do it. Moreover, 
homeowners wouldn't be as dependent on insurance companies to help them 
out immediately after a disaster. As one expert has noted, why should a 
consumer continue to give insurance companies thousands of dollars each 
year when the consumer could deposit the same amount of money annually 
in a tax-free, interest-bearing savings account controlled by the 
consumer?

  The third bill that Senator Martinez and I are introducing today is 
the Policyholder Disaster Protection Act of 2007. Under this bill, 
insurance companies would be permitted to accumulate tax-deferred 
catastrophic reserves, much like the way that homeowners would be 
permitted under the bill I just discussed. Depending on their size, 
insurance companies could save up to a certain capped amount, which 
would grow over time.
  Our current Federal tax code actually provides a disincentive for 
insurance companies to accumulate reserve funds for catastrophes. Under 
the current system, insurance companies can only reserve against losses 
that have already occurred, instead of future losses. The United States 
is the only industrialized nation that actually taxes reserves in this 
way. It's time for reform, so that consumers are better protected.
  Make no mistake, though--this bill is not a give-away to the 
insurance companies. Instead, the Policyholder Disaster Protection Act 
of 2007 would strictly regulate when and how insurance companies could 
access their reserves, to make sure the money is used only for its 
intended purposes.
  If implemented correctly, this bill could result in approximately $15 
billion worth of reserves being saved up by insurance companies, which 
later could be spent to pay for policyholder claims and to keep 
insurance policies available and affordable. Consumers could feel more 
protected knowing that their insurance company would have the money 
saved to help them out after a major disaster. Moreover, this approach 
should help make the insurance market more stable and less prone to 
insurers going bankrupt.
  The fourth bill that Senator Martinez and I are introducing is the 
Hurricane and Tornado Mitigation Investment Act of 2007. A similar bill 
was introduced in the House of Representatives by Gus Bilirakis and has 
eight cosponsors.
  We have learned through experience that steps taken to fortify and 
strengthen homes and businesses can prevent damage in the event of a 
catastrophe. This bill would allow a tax credit of 25 percent not to 
exceed $5,000 for the costs of building upgrades to mitigate damage 
caused by hurricanes or tornados.
  Updates and improvements to roofs, exterior doors and garages would 
be covered under this bill. To ensure that these measures are 
adequately constructed, a state-certified inspector must examine the 
home or business. The benefits of this approach are straightforward--
home and business owners would be encouraged to plan in advance for 
future disasters and take steps to mitigate damage caused by 
catastrophic events.
  The fifth bill that Senator Martinez and I are introducing is the 
Nonadmitted and Reinsurance Reform Act of 2007. Last year, a similar 
bill, introduced by Ginny Brown-Waite passed unanimously in the House 
of Representatives.
  Currently, a small percentage of consumers may be unable to find 
insurance from a licensed insurer, and may be able to purchase 
insurance from non-licensed insurers, called nonadmitted or surplus 
lines insurers. These surplus lines insurers often function as a 
``safety valve'' for the insurance market. Florida has more individuals 
in the surplus lines market than any other State.
  Virtually every sector--insurers, producers, consumers--has voiced 
concern with the inefficient patchwork of different laws and 
regulations that characterize the surplus lines regulatory system. This 
bill aims to streamline regulations in the surplus lines marketplace 
through a mix of national standards with State enforcement and 
uniformity achieved through both incentives and preemption of certain 
State laws. This bill would create a more efficient and streamlined 
regulatory system and promote competition in the nonadmitted 
marketplace.
  The sixth bill that Senator Martinez and I are introducing is the 
National Hurricane Research Initiative Act of 2007. From the storms of 
2004 and 2005 we learned the importance of accurate hurricane tracking 
and prediction. Accurate prediction provides residents of coastal 
communities more time to find safe and sound shelter.
  The objective of this bill is to enhance and improve knowledge of 
hurricanes by harnessing the expertise of the Federal Government's 
science professionals to better understand hurricane prediction, 
intensity, and mitigation on coastal populations and infrastructure.
  Let me emphasize again what we need to accomplish to reform our 
current insurance system and to effectively plan for catastrophic 
losses.
  We need a comprehensive approach that will make sure the United 
States is truly prepared for the financial fallout from natural 
disasters. We need a property and casualty insurance system that is not 
forced to spread valuable taxpayer dollars after a catastrophe strikes. 
We need a system that protects consumers and small businesses from 
losing their insurance policies or being forced to pay exorbitant 
insurance rates. We need ways to encourage responsible construction and 
mitigation techniques. And we need a

[[Page S3362]]

system that helps insurance companies use their resources in cost-
effective ways so that they will not go insolvent after major 
disasters.
  Our American economy depends on a health property and casualty 
insurance system. By enacting meaningful reforms, we can ensure that 
our economy remains protected and remains the most resilient economy in 
the world. I know this complicated process won't be easy for us--but 
let's roll up our shirtsleeves and get it done.
  I request that the text of the Homeowners Protection Act of 2007, the 
Catastrophe Savings Accounts Act and the Policyholder Disaster 
Protection Act of 2007 be printed in the Record.
  There being no objection, the bills were ordered to be printed in the 
Record, as follows:

                                 S. 926

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Policyholder Disaster 
     Protection Act of 2007''.

     SEC. 2. FINDINGS.

       The Congress makes the following findings:
       (1) Rising costs resulting from natural disasters are 
     placing an increasing strain on the ability of property and 
     casualty insurance companies to assure payment of homeowners' 
     claims and other insurance claims arising from major natural 
     disasters now and in the future.
       (2) Present tax laws do not provide adequate incentives to 
     assure that natural disaster insurance is provided or, where 
     such insurance is provided, that funds are available for 
     payment of insurance claims in the event of future 
     catastrophic losses from major natural disasters, as present 
     law requires an insurer wishing to accumulate surplus assets 
     for this purpose to do so entirely from its after-tax 
     retained earnings.
       (3) Revising the tax laws applicable to the property and 
     casualty insurance industry to permit carefully controlled 
     accumulation of pretax dollars in separate reserve funds 
     devoted solely to the payment of claims arising from future 
     major natural disasters will provide incentives for property 
     and casualty insurers to make natural disaster insurance 
     available, will give greater protection to the Nation's 
     homeowners, small businesses, and other insurance consumers, 
     and will help assure the future financial health of the 
     Nation's insurance system as a whole.
       (4) Implementing these changes will reduce the possibility 
     that a significant portion of the private insurance system 
     would fail in the wake of a major natural disaster and that 
     governmental entities would be required to step in to provide 
     relief at taxpayer expense.

     SEC. 3. CREATION OF POLICYHOLDER DISASTER PROTECTION FUNDS; 
                   CONTRIBUTIONS TO AND DISTRIBUTIONS FROM FUNDS; 
                   OTHER RULES.

       (a) Contributions to Policyholder Disaster Protection 
     Funds.--Subsection (c) of section 832 of the Internal Revenue 
     Code of 1986 (relating to the taxable income of insurance 
     companies other than life insurance companies) is amended by 
     striking ``and'' at the end of paragraph (12), by striking 
     the period at the end of paragraph (13) and inserting ``; 
     and'', and by adding at the end the following new paragraph:
       ``(14) the qualified contributions to a policyholder 
     disaster protection fund during the taxable year.''.
       (b) Distributions From Policyholder Disaster Protection 
     Funds.--Paragraph (1) of section 832(b) of such Code is 
     amended by striking ``and'' at the end of subparagraph (D), 
     by striking the period at the end of subparagraph (E) and 
     inserting ``, and'', and by adding at the end the following 
     new subparagraph:
       ``(F) the amount of any distributions from a policyholder 
     disaster protection fund during the taxable year, except that 
     a distribution made to return to the qualified insurance 
     company any contribution which is not a qualified 
     contribution (as defined in subsection (h)) for a taxable 
     year shall not be included in gross income if such 
     distribution is made prior to the filing of the tax return 
     for such taxable year.''.
       (c) Definitions and Other Rules Relating to Policyholder 
     Disaster Protection Funds.--Section 832 of such Code 
     (relating to insurance company taxable income) is amended by 
     adding at the end the following new subsection:
       ``(h) Definitions and Other Rules Relating to Policyholder 
     Disaster Protection Funds.--For purposes of this section--
       ``(1) Policyholder disaster protection fund.--The term 
     `policyholder disaster protection fund' (hereafter in this 
     subsection referred to as the `fund') means any custodial 
     account, trust, or any other arrangement or account--
       ``(A) which is established to hold assets that are set 
     aside solely for the payment of qualified losses, and
       ``(B) under the terms of which--
       ``(i) the assets in the fund are required to be invested in 
     a manner consistent with the investment requirements 
     applicable to the qualified insurance company under the laws 
     of its jurisdiction of domicile,
       ``(ii) the net income for the taxable year derived from the 
     assets in the fund is required to be distributed no less 
     frequently than annually,
       ``(iii) an excess balance drawdown amount is required to be 
     distributed to the qualified insurance company no later than 
     the close of the taxable year following the taxable year for 
     which such amount is determined,
       ``(iv) a catastrophe drawdown amount may be distributed to 
     the qualified insurance company if distributed prior to the 
     close of the taxable year following the year for which such 
     amount is determined,
       ``(v) a State required drawdown amount may be distributed, 
     and
       ``(vi) no distributions from the fund are required or 
     permitted other than the distributions described in clauses 
     (ii) through (v) and the return to the qualified insurance 
     company of contributions that are not qualified 
     contributions.
       ``(2) Qualified insurance company.--The term `qualified 
     insurance company' means any insurance company subject to tax 
     under section 831(a).
       ``(3) Qualified contribution.--The term `qualified 
     contribution' means a contribution to a fund for a taxable 
     year to the extent that the amount of such contribution, when 
     added to the previous contributions to the fund for such 
     taxable year, does not exceed the excess of--
       ``(A) the fund cap for the taxable year, over
       ``(B) the fund balance determined as of the close of the 
     preceding taxable year.
       ``(4) Excess balance drawdown amounts.--The term `excess 
     balance drawdown amount' means the excess (if any) of--
       ``(A) the fund balance as of the close of the taxable year, 
     over
       ``(B) the fund cap for the following taxable year.
       ``(5) Catastrophe drawdown amount.--
       ``(A) In general.--The term `catastrophe drawdown amount' 
     means an amount that does not exceed the lesser of the amount 
     determined under subparagraph (B) or (C).
       ``(B) Net losses from qualifying events.--The amount 
     determined under this subparagraph shall be equal to the 
     qualified losses for the taxable year determined without 
     regard to clause (ii) of paragraph (8)(A).
       ``(C) Gross losses in excess of threshold.--The amount 
     determined under this subparagraph shall be equal to the 
     excess (if any) of--
       ``(i) the qualified losses for the taxable year, over
       ``(ii) the lesser of--

       ``(I) the fund cap for the taxable year (determined without 
     regard to paragraph (9)(E)), or
       ``(II) 30 percent of the qualified insurance company's 
     surplus as regards policyholders as shown on the company's 
     annual statement for the calendar year preceding the taxable 
     year.

       ``(D) Special drawdown amount following a recent 
     catastrophe loss year.--If for any taxable year included in 
     the reference period the qualified losses exceed the amount 
     determined under subparagraph (C)(ii), the `catastrophe 
     drawdown amount' shall be an amount that does not exceed the 
     lesser of the amount determined under subparagraph (B) or the 
     amount determined under this subparagraph. The amount 
     determined under this subparagraph shall be an amount equal 
     to the excess (if any) of--
       ``(i) the qualified losses for the taxable year, over
       ``(ii) the lesser of--

       ``(I) \1/3\ of the fund cap for the taxable year 
     (determined without regard to paragraph (9)(E)), or
       ``(II) 10 percent of the qualified insurance company's 
     surplus as regards policyholders as shown on the company's 
     annual statement for the calendar year preceding the taxable 
     year.

       ``(E) Reference period.--For purposes of subparagraph (D), 
     the reference period shall be determined under the following 
     table:

The reference period shall be--in--
The 3 preceding taxable years. ........................................
The 2 preceding taxable years. ........................................
The preceding taxable year. ...........................................
No reference period applies............................................
       ``(6) State required drawdown amount.--The term `State 
     required drawdown amount' means any amount that the 
     department of insurance for the qualified insurance company's 
     jurisdiction of domicile requires to be distributed from the 
     fund, to the extent such amount is not otherwise described in 
     paragraph (4) or (5).
       ``(7) Fund balance.--The term `fund balance' means--
       ``(A) the sum of all qualified contributions to the fund,
       ``(B) less any net investment loss of the fund for any 
     taxable year or years, and
       ``(C) less the sum of all distributions under clauses (iii) 
     through (v) of paragraph (1)(B).
       ``(8) Qualified losses.--
       ``(A) In general.--The term `qualified losses' means, with 
     respect to a taxable year--
       ``(i) the amount of losses and loss adjustment expenses 
     incurred in the qualified lines of business specified in 
     paragraph (9), net of reinsurance, as reported in the 
     qualified insurance company's annual statement for the 
     taxable year, that are attributable to one or more qualifying 
     events (regardless of when such qualifying events occurred),
       ``(ii) the amount by which such losses and loss adjustment 
     expenses attributable to

[[Page S3363]]

     such qualifying events have been reduced for reinsurance 
     received and recoverable, plus
       ``(iii) any nonrecoverable assessments, surcharges, or 
     other liabilities that are borne by the qualified insurance 
     company and are attributable to such qualifying events.
       ``(B) Qualifying event.--For purposes of subparagraph (A), 
     the term `qualifying event' means any event that satisfies 
     clauses (i) and (ii).
       ``(i) Event.--An event satisfies this clause if the event 
     is 1 or more of the following:

       ``(I) Windstorm (hurricane, cyclone, or tornado).
       ``(II) Earthquake (including any fire following).
       ``(III) Winter catastrophe (snow, ice, or freezing).
       ``(IV) Fire.
       ``(V) Tsunami.
       ``(VI) Flood.
       ``(VII) Volcanic eruption.
       ``(VIII) Hail.

       ``(ii) Catastrophe designation.--An event satisfies this 
     clause if the event--

       ``(I) is designated a catastrophe by Property Claim 
     Services or its successor organization,
       ``(II) is declared by the President to be an emergency or 
     disaster, or
       ``(III) is declared to be an emergency or disaster in a 
     similar declaration by the chief executive official of a 
     State, possession, or territory of the United States, or the 
     District of Columbia.

       ``(9) Fund cap.--
       ``(A) In general.--The term `fund cap' for a taxable year 
     is the sum of the separate lines of business caps for each of 
     the qualified lines of business specified in the table 
     contained in subparagraph (C) (as modified under 
     subparagraphs (D) and (E)).
       ``(B) Separate lines of business cap.--For purposes of 
     subparagraph (A), the separate lines of business cap, with 
     respect to a qualified line of business specified in the 
     table contained in subparagraph (C), is the product of--
       ``(i) net written premiums reported in the annual statement 
     for the calendar year preceding the taxable year in such line 
     of business, multiplied by
       ``(ii) the fund cap multiplier applicable to such qualified 
     line of business.
       ``(C) Qualified lines of business and their respective fund 
     cap multipliers.--For purposes of this paragraph, the 
     qualified lines of business and fund cap multipliers 
     specified in this subparagraph are those specified in the 
     following table:

    ``Line of Business on Annual                               Fund Cap
        Statement Blank:                                    Multiplier:
      Fire...................................................... 0.25  
      Allied.................................................... 1.25  
      Farmowners Multiple Peril................................. 0.25  
      Homeowners Multiple Peril................................. 0.75  
      Commercial Multi Peril (non-liability portion)............ 0.50  
      Earthquake................................................13.00  
      Inland Marine.............................................. 0.25.
       ``(D) Subsequent modifications of the annual statement 
     blank.--If, with respect to any taxable year beginning after 
     the effective date of this subsection, the annual statement 
     blank required to be filed is amended to replace, combine, or 
     otherwise modify any of the qualified lines of business 
     specified in subparagraph (C), then for such taxable year 
     subparagraph (C) shall be applied in a manner such that the 
     fund cap shall be the same amount as if such reporting 
     modification had not been made.
       ``(E) 20-year phase-in.--Notwithstanding subparagraph (C), 
     the fund cap for a taxable year shall be the amount 
     determined under subparagraph (C), as adjusted pursuant to 
     subparagraph (D) (if applicable), multiplied by the phase-in 
     percentage indicated in the following table:


------------------------------------------------------------------------
                                                            Phase-in
                                                        percentage to be
                                                        applied to fund
              Taxable year beginning in:                  cap computed
                                                             under
                                                       subparagraphs (A)
                                                            and (B):
------------------------------------------------------------------------
2007.................................................          5 percent
2008.................................................         10 percent
2009.................................................         15 percent
2010.................................................         20 percent
2011.................................................         25 percent
2012.................................................         30 percent
2013.................................................         35 percent
2014.................................................         40 percent
2015.................................................         45 percent
2016.................................................         50 percent
2017.................................................         55 percent
2018.................................................         60 percent
2019.................................................         65 percent
2020.................................................         70 percent
2021.................................................         75 percent
2022.................................................         80 percent
2023.................................................         85 percent
2024.................................................         90 percent
2025.................................................         95 percent
2026 and later.......................................        100 percent
------------------------------------------------------------------------

       ``(10) Treatment of investment income and gain or loss.--
       ``(A) Contributions in kind.--A transfer of property other 
     than money to a fund shall be treated as a sale or exchange 
     of such property for an amount equal to its fair market value 
     as of the date of transfer, and appropriate adjustment shall 
     be made to the basis of such property. Section 267 shall 
     apply to any loss realized upon such a transfer.
       ``(B) Distributions in kind.--A transfer of property other 
     than money by a fund to the qualified insurance company shall 
     not be treated as a sale or exchange or other disposition of 
     such property. The basis of such property immediately after 
     such transfer shall be the greater of the basis of such 
     property immediately before such transfer or the fair market 
     value of such property on the date of such transfer.
       ``(C) Income with respect to fund assets.--Items of income 
     of the type described in paragraphs (1)(B), (1)(C), and (2) 
     of subsection (b) that are derived from the assets held in a 
     fund, as well as losses from the sale or other disposition of 
     such assets, shall be considered items of income, gain, or 
     loss of the qualified insurance company. Notwithstanding 
     paragraph (1)(F) of subsection (b), distributions of net 
     income to the qualified insurance company pursuant to 
     paragraph (1)(B)(ii) of this subsection shall not cause such 
     income to be taken into account a second time.
       ``(11) Net income; net investment loss.--For purposes of 
     paragraph (1)(B)(ii), the net income derived from the assets 
     in the fund for the taxable year shall be the items of income 
     and gain for the taxable year, less the items of loss for the 
     taxable year, derived from such assets, as described in 
     paragraph (10)(C). For purposes of paragraph (7), there is a 
     net investment loss for the taxable year to the extent that 
     the items of loss described in the preceding sentence exceed 
     the items of income and gain described in the preceding 
     sentence.
       ``(12) Annual statement.--For purposes of this subsection, 
     the term `annual statement' shall have the meaning set forth 
     in section 846(f)(3).
       ``(13) Exclusion of premiums and losses on certain puerto 
     rican risks.--Notwithstanding any other provision of this 
     subsection, premiums and losses with respect to risks covered 
     by a catastrophe reserve established under the laws or 
     regulations of the Commonwealth of Puerto Rico shall not be 
     taken into account under this subsection in determining the 
     amount of the fund cap or the amount of qualified losses.
       ``(14) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection, including regulations--
       ``(A) which govern the application of this subsection to a 
     qualified insurance company having a taxable year other than 
     the calendar year or a taxable year less than 12 months,
       ``(B) which govern a fund maintained by a qualified 
     insurance company that ceases to be subject to this part, and
       ``(C) which govern the application of paragraph (9)(D).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2006.
                                  ____


                                 S. 927

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Catastrophe Savings Accounts 
     Act of 2007''.

     SEC. 2. CATASTROPHE SAVINGS ACCOUNTS.

       (a) In General.--Subchapter F of Chapter 1 of the Internal 
     Revenue Code of 1986 (relating to exempt organizations) is 
     amended by adding at the end the following new part:

                ``PART IX--CATASTROPHE SAVINGS ACCOUNTS

     ``SEC. 530A. CATASTROPHE SAVINGS ACCOUNTS.

       ``(a) General Rule.--A Catastrophe Savings Account shall be 
     exempt from taxation under this subtitle. Notwithstanding the 
     preceding sentence, such account shall be subject to the 
     taxes imposed by section 511 (relating to imposition of tax 
     on unrelated business income of charitable organizations).
       ``(b) Catastrophe Savings Account.--For purposes of this 
     section, the term `Catastrophe Savings Account' means a trust 
     created or organized in the United States for the exclusive 
     benefit of an individual or his beneficiaries and which is 
     designated (in such manner as the Secretary shall prescribe) 
     at the time of the establishment of the trust as a 
     Catastrophe Savings Account, but only if the written 
     governing instrument creating the trust meets the following 
     requirements:
       ``(1) Except in the case of a qualified rollover 
     contribution--
       ``(A) no contribution will be accepted unless it is in 
     cash, and
       ``(B) contributions will not be accepted in excess of the 
     account balance limit specified in subsection (c).
       ``(2) The trustee is a bank (as defined in section 408(n)) 
     or another person who demonstrates to the satisfaction of the 
     Secretary that the manner in which that person will 
     administer the trust will be consistent with the requirements 
     of this section.
       ``(3) The interest of an individual in the balance of his 
     account is nonforfeitable.
       ``(4) The assets of the trust shall not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(c) Account Balance Limit.--The aggregate account balance 
     for all Catastrophe Savings Accounts maintained for the 
     benefit of an individual (including qualified rollover 
     contributions) shall not exceed--
       ``(1) in the case of an individual whose qualified 
     deductible is not more than $1,000, $2,000, and

[[Page S3364]]

       ``(2) in the case of an individual whose qualified 
     deductible is more than $1,000, the amount equal to the 
     lesser of--
       ``(A) $15,000, or
       ``(B) twice the amount of the individual's qualified 
     deductible.
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualified catastrophe expenses.--The term `qualified 
     catastrophe expenses' means expenses paid or incurred by 
     reason of a major disaster that has been declared by the 
     President under section 401 of the Robert T. Stafford 
     Disaster Relief and Emergency Assistance Act.
       ``(2) Qualified deductible.--With respect to an individual, 
     the term `qualified deductible' means the annual deductible 
     for the individual's homeowners' insurance policy.
       ``(3) Qualified rollover contribution.--The term `qualified 
     rollover contribution' means a contribution to a Catastrophe 
     Savings Account--
       ``(A) from another such account of the same beneficiary, 
     but only if such amount is contributed not later than the 
     60th day after the distribution from such other account, and
       ``(B) from a Catastrophe Savings Account of a spouse of the 
     beneficiary of the account to which the contribution is made, 
     but only if such amount is contributed not later than the 
     60th day after the distribution from such other account.
       ``(e) Tax Treatment of Distributions.--
       ``(1) In general.--Any distribution from a Catastrophe 
     Savings Account shall be includible in the gross income of 
     the distributee in the manner as provided in section 72.
       ``(2) Distributions for qualified catastrophe expenses.--
       ``(A) In general.--No amount shall be includible in gross 
     income under paragraph (1) if the qualified catastrophe 
     expenses of the distributee during the taxable year are not 
     less than the aggregate distributions during the taxable 
     year.
       ``(B) Distributions in excess of expenses.--If such 
     aggregate distributions exceed such expenses during the 
     taxable year, the amount otherwise includible in gross income 
     under paragraph (1) shall be reduced by the amount which 
     bears the same ratio to the amount which would be includible 
     in gross income under paragraph (1) (without regard to this 
     subparagraph) as the qualified catastrophe expenses bear to 
     such aggregate distributions.
       ``(3) Additional tax for distributions not used for 
     qualified catastrophe expenses.--The tax imposed by this 
     chapter for any taxable year on any taxpayer who receives a 
     payment or distribution from a Catastrophe Savings Account 
     which is includible in gross income shall be increased by 10 
     percent of the amount which is so includible.
       ``(4) Retirement distributions.--No amount shall be 
     includible in gross income under paragraph (1) (or subject to 
     an additional tax under paragraph (3)) if the payment or 
     distribution is made on or after the date on which the 
     distributee attains age 62.
       ``(f) Tax Treatment of Accounts.--Rules similar to the 
     rules of paragraphs (2) and (4) of section 408(e) shall apply 
     to any Catastrophe Savings Account.''.
       (b) Tax on Excess Contributions.--
       (1) In general.--Subsection (a) of section 4973 of the 
     Internal Revenue Code of 1986 (relating to tax on excess 
     contributions to certain tax-favored accounts and annuities) 
     is amended by striking ``or'' at the end of paragraph (4), by 
     inserting ``or'' at the end of paragraph (5), and by 
     inserting after paragraph (5) the following new paragraph:
       ``(6) a Catastrophe Savings Account (as defined in section 
     530A),''.
       (2) Excess contribution.--Section 4973 of such Code is 
     amended by adding at the end the following new subsection:
       ``(h) Excess Contributions to Catastrophe Savings 
     Accounts.--For purposes of this section, in the case of 
     Catastrophe Savings Accounts (within the meaning of section 
     530A), the term `excess contributions' means the amount by 
     which the aggregate account balance for all Catastrophe 
     Savings Accounts maintained for the benefit of an individual 
     exceeds the account balance limit defined in section 
     530A(c)(1).''.
       (c) Conforming Amendment.--The table of parts for 
     subchapter F of chapter 1 of the Internal Revenue Code of 
     1986 is amended by adding at the end the following new item:

               ``Part IX. Catastrophe Savings Accounts''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2006.
                                  ____


                                 S. 928

       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 
     Protection Act of 2007''.
       (b) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; table of contents.
Sec. 2. Congressional findings.
Sec. 3. National Commission on Catastrophe Preparation and Protection.
Sec. 4. Program authority.
Sec. 5. Qualified lines of coverage.
Sec. 6. Covered perils.
Sec. 7. Contracts for reinsurance coverage for eligible State programs.
Sec. 8. Minimum level of retained losses and maximum Federal liability.
Sec. 9. Consumer Hurricane, Earthquake, Loss Protection (HELP) Fund.
Sec. 10. Regulations.
Sec. 11. Termination.
Sec. 12. Annual study concerning benefits of the Act.
Sec. 13. GAO study of the National Flood Insurance Program and 
              hurricane-related flooding.
Sec. 14. Definitions.

     SEC. 2. FINDINGS.

       Congress finds that--
       (1) America needs to take steps to be better prepared for 
     and better protected from catastrophes;
       (2) the hurricane seasons of 2004 and 2005 are startling 
     reminders of both the human and economic devastation that 
     hurricanes, flooding, and other natural disasters can cause;
       (3) if a repeat of the deadly 1900 Galveston hurricane 
     occurred again it could cause thousands of deaths and over 
     $36,000,000,000 in loss;
       (4) if the 1906 San Francisco earthquake occurred again it 
     could cause thousands of deaths, displace millions of 
     residents, destroy thousands of businesses, and cause over 
     $400,000,000,000 in loss;
       (5) if a Category 5 hurricane were to hit Miami it could 
     cause thousands of deaths and over $50,000,000,000 in loss 
     and devastate the local and national economy;
       (6) if a repeat of the 1938 ``Long Island Express'' were to 
     occur again it could cause thousands of deaths and over 
     $30,000,000,000 in damage, and if a hurricane that strong 
     were to directly hit Manhattan it could cause over 
     $150,000,000,000 in damage and cause irreparable harm to our 
     Nation's economy;
       (7) a more comprehensive and integrated approach to dealing 
     with catastrophes is needed;
       (8) using history as a guide, natural catastrophes will 
     inevitably place a tremendous strain on homeowners' insurance 
     markets in many areas, will raise costs for consumers, and 
     will jeopardize the ability of many consumers to adequately 
     insure their homes and possessions;
       (9) the lack of sufficient insurance capacity and the 
     inability of private insurers to build enough capital, in a 
     short amount of time, threatens to increase the number of 
     uninsured homeowners, which, in turn, increases the risk of 
     mortgage defaults and the strain on the Nation's banking 
     system;
       (10) some States have exercised leadership through 
     reasonable action to ensure the continued availability and 
     affordability of homeowners' insurance for all residents;
       (11) it is appropriate that efforts to improve insurance 
     availability be designed and implemented at the State level;
       (12) while State insurance programs may be adequate to 
     cover losses from most natural disasters, a small percentage 
     of events is likely to exceed the financial capacity of these 
     programs and the local insurance markets;
       (13) a limited national insurance backstop will improve the 
     effectiveness of State insurance programs and private 
     insurance markets and will increase the likelihood that 
     homeowners' insurance claims will be fully paid in the event 
     of a large natural catastrophe and that routine claims that 
     occur after a mega-catastrophe will also continue to be paid;
       (14) it is necessary to provide a national insurance 
     backstop program that will provide more protection at an 
     overall lower cost and that will promote stability in the 
     homeowners' insurance market;
       (15) 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; and
       (16) any Federal reinsurance program must be founded upon 
     sound actuarial principles and priced in a manner that 
     encourages the creation of State funds and maximizes the 
     buying potential of these State funds and encourages and 
     promotes prevention and mitigation, recovery and rebuilding, 
     and consumer education, and emphasizes continuous analysis 
     and improvement.

     SEC. 3. NATIONAL COMMISSION ON CATASTROPHE PREPARATION AND 
                   PROTECTION.

       (a) Establishment.--The Secretary of the Treasury shall 
     establish a commission to be known as the National Commission 
     on Catastrophe Preparation and Protection.
       (b) Duties.--The Commission shall meet for the purpose of 
     advising the Secretary regarding the estimated loss costs 
     associated with the contracts for reinsurance coverage 
     available under this Act and carrying out the functions 
     specified in this Act, including--
       (1) the development and implementation of public education 
     concerning the risks posed by natural catastrophes;
       (2) the development and implementation of prevention, 
     mitigation, recovery, and rebuilding standards that better 
     prepare and protect the United States from catastrophes; and
       (3) conducting continuous analysis of the effectiveness of 
     this Act and recommending improvements to the Congress so 
     that--
       (A) the costs of providing catastrophe protection are 
     decreased; and
       (B) the United States is better prepared.
       (c) Members.--
       (1) Appointment and qualification.--The Commission shall 
     consist of 9 members, as follows:

[[Page S3365]]

       (A) Homeland security member.--The Secretary of Homeland 
     Security or the Secretary's designee.
       (B) Appointed members.--8 members appointed by the 
     Secretary, who shall consist of--
       (i) 1 individual who is an actuary;
       (ii) 1 individual who is employed in engineering;
       (iii) 1 individual representing the scientific community;
       (iv) 1 individual representing property and casualty 
     insurers;
       (v) 1 individual representing reinsurers;
       (vi) 1 individual who is a member or former member of the 
     National Association of Insurance Commissioners; and
       (vii) 2 individuals who are consumers.
       (2) Prevention of conflicts of interest.--Members shall 
     have no personal or financial interest at stake in the 
     deliberations of the Commission.
       (d) Treatment of Non-Federal Members.--Each member of the 
     Commission who is not otherwise employed by the Federal 
     Government shall be considered a special Government employee 
     for purposes of sections 202 and 208 of title 18, United 
     States Code.
       (e) Experts and Consultants.--
       (1) In general.--The Commission may procure temporary and 
     intermittent services from individuals or groups recognized 
     as experts in the fields of meteorology, seismology, 
     vulcanlogy, geology, structural engineering, wind 
     engineering, and hydrology, and other fields, under section 
     3109(b) of title 5, United States Code, but at a rate not in 
     excess of the daily equivalent of the annual rate of basic 
     pay payable for level V of the Executive Schedule, for each 
     day during which the individual procured is performing such 
     services for the Commission.
       (2) Other experts.--The Commission may also procure, and 
     the Congress encourages the Commission to procure, experts 
     from universities, research centers, foundations, and other 
     appropriate organizations who could study, research, and 
     develop methods and mechanisms that could be utilized to 
     strengthen structures to better withstand the perils covered 
     by this Act.
       (f) Compensation.--
       (1) In general.--Each member of the Commission who is not 
     an officer or employee of the Federal Government shall be 
     compensated at a rate of basic pay payable for level V of the 
     Executive Schedule, for each day (including travel time) 
     during which such member is engaged in the performance of the 
     duties of the Commission.
       (2) Federal employees.--All members of the Commission who 
     are officers or employees of the United States shall serve 
     without compensation in addition to that received for their 
     services as officers or employees of the United States.
       (g) Obtaining Data.--
       (1) In general.--The Commission and the Secretary may 
     solicit loss exposure data and such other information as 
     either the Commission or the Secretary deems necessary to 
     carry out its responsibilities from governmental agencies and 
     bodies and organizations that act as statistical agents for 
     the insurance industry.
       (2) Obligation to keep confidential.--The Commission and 
     the Secretary shall take such actions as are necessary to 
     ensure that information that either deems confidential or 
     proprietary is disclosed only to authorized individuals 
     working for the Commission or the Secretary.
       (3) Failure to comply.--No State insurance or reinsurance 
     program may participate if any governmental agency within 
     that State has refused to provide information requested by 
     the Commission or the Secretary.
       (h) Funding.--
       (1) Authorization of appropriations.--There is authorized 
     to be appropriated--
       (A) $10,000,000 for fiscal year 2008 for the--
       (i) initial expenses in establishing the Commission; and
       (ii) initial activities of the Commission that cannot 
     timely be covered by amounts obtained pursuant to section 
     7(b)(6)(B)(iii), as determined by the Secretary;
       (B) such additional sums as may be necessary to carry out 
     subsequent activities of the Commission;
       (C) $10,000,000 for fiscal year 2008 for the initial 
     expenses of the Secretary in carrying out the program 
     authorized under section 4; and
       (D) such additional sums as may be necessary to carry out 
     subsequent activities of the Secretary under this Act.
       (2) Offset.--
       (A) Obtained from purchasers.--The Secretary shall provide, 
     to the maximum extent practicable, that an amount equal to 
     any amount appropriated under paragraph (1) is obtained from 
     purchasers of reinsurance coverage under this Act and 
     deposited in the Fund established under section 9.
       (B) Inclusion in pricing contracts.--Any offset obtained 
     under subparagraph (A) shall be obtained by inclusion of a 
     provision for the Secretary's and the Commission's expenses 
     incorporated into the pricing of the contracts for such 
     reinsurance coverage, pursuant to section 7(b)(6)(B)(iii).
       (i) Termination.--The Commission shall terminate upon the 
     effective date of the repeal under section 11(c).

     SEC. 4. PROGRAM AUTHORITY.

       (a) In General.--The Secretary, in consultation with the 
     Secretary of Homeland Security, shall carry out a program 
     under this Act to make homeowners protection coverage 
     available through contracts for reinsurance coverage under 
     section 7, which shall be made available for purchase only by 
     eligible State programs.
       (b) Purpose.--The program shall be designed to make 
     reinsurance coverage under this Act available--
       (1) to improve the availability and affordability of 
     homeowners' insurance for the purpose of facilitating the 
     pooling, and spreading the risk, of catastrophic financial 
     losses from natural catastrophes;
       (2) to improve the solvency and capacity of homeowners' 
     insurance markets;
       (3) to encourage the development and implementation of 
     mitigation, prevention, recovery, and rebuilding standards; 
     and
       (4) to recommend methods to continuously improve the way 
     the United States reacts and responds to catastrophes, 
     including improvements to the HELP Fund established under 
     section 9.
       (c) Contract Principles.--Under the program established 
     under this Act, the Secretary shall offer reinsurance 
     coverage through contracts with covered purchasers, which 
     contracts shall--
       (1) minimize the administrative costs of the Federal 
     Government; and
       (2) provide coverage based solely on insured losses within 
     a State for the eligible State program purchasing the 
     contract.

     SEC. 5. QUALIFIED LINES OF COVERAGE.

       Each contract for reinsurance coverage made available under 
     this Act shall provide insurance coverage against residential 
     property losses to--
       (1) homes (including dwellings owned under condominium and 
     cooperative ownership arrangements); and
       (2) the contents of apartment buildings.

     SEC. 6. COVERED PERILS.

       (a) In General.--Each contract for reinsurance coverage 
     made available under this Act shall cover losses insured or 
     reinsured by an eligible State program purchasing the 
     contract that are proximately caused by--
       (1) earthquakes;
       (2) perils ensuing from earthquakes, including fire and 
     tsunamis;
       (3) tropical cyclones having maximum sustained winds of at 
     least 74 miles per hour, including hurricanes and typhoons;
       (4) tornadoes;
       (5) volcanic eruptions;
       (6) catastrophic winter storms; and
       (7) any other natural catastrophe peril (not including any 
     flood) insured or reinsured under the eligible State program 
     for which reinsurance coverage under section 7 is provided.
       (b) Rulemaking.--The Secretary shall, by regulation, define 
     the natural catastrophe perils described in subsection 
     (a)(7).

     SEC. 7. CONTRACTS FOR REINSURANCE COVERAGE FOR ELIGIBLE STATE 
                   PROGRAMS.

       (a) Eligible State Programs.--A program shall be eligible 
     to purchase a contract under this section for reinsurance 
     coverage under this Act only if the State entity authorized 
     to make such determinations certifies to the Secretary that 
     the program complies with the following requirements:
       (1) Program design.--The program shall be a State-
     operated--
       (A) insurance program that--
       (i) offers coverage for--

       (I) homes (which may include dwellings owned under 
     condominium and cooperative ownership arrangements); and
       (II) the contents of apartments to State residents; and

       (ii) is authorized by State law; or
       (B) reinsurance program that is designed to improve private 
     insurance markets that offer coverage for--
       (i) homes (which may include dwellings owned under 
     condominium and cooperative ownership arrangements); and
       (ii) the contents of apartments.
       (2) Operation.--
       (A) In general.--The program shall meet the following 
     requirements:
       (i) A majority of the members of the governing body of the 
     program shall be public officials.
       (ii) The State shall have a financial interest in the 
     program, which shall not include a program authorized by 
     State law or regulation that requires insurers to pool 
     resources to provide property insurance coverage for covered 
     perils.
       (iii) The State shall not be eligible for Consumer HELP 
     Fund assistance under section 9 if a State has appropriated 
     money from the State fund and not paid it back to the State 
     fund, with interest.
       (iv) Upon receipt of assistance from the Consumer HELP 
     Fund, each reimbursement contract sold by a State shall 
     provide for reimbursements at 100 percent of eligible losses.
       (v) A State shall be required to utilize either--

       (I) an open rating system that permits insurers to set 
     homeowners' insurance rates without prior approval of the 
     State; or
       (II) a rate approval process that requires actuarially 
     sound, risk-based, self-sufficient homeowners' insurance 
     rates.

       (B) Certification.--A State shall not be eligible for 
     Consumer HELP Fund assistance unless the Secretary can 
     certify that such State is in compliance with the requirement 
     described in clause (v).
       (3) Tax status.--The program shall be structured and 
     carried out in a manner so that the program is exempt from 
     all Federal taxation.
       (4) Coverage.--The program shall cover perils enumerated in 
     section 6.

[[Page S3366]]

       (5) Earnings.--The program may not provide for, nor shall 
     have ever made, any redistribution of any part of any net 
     profits of the program to any insurer that participates in 
     the program.
       (6) Prevention and mitigation.--
       (A) In general.--The program shall include prevention and 
     mitigation provisions that require that not less $10,000,000 
     and not more than 35 percent of the net investment income of 
     the State insurance or reinsurance program be used for 
     programs to mitigate losses from natural catastrophes for 
     which the State insurance or reinsurance program was 
     established.
       (B) Rule of construction.--For purposes of this paragraph, 
     prevention and mitigation shall include methods to reduce 
     losses of life and property, including appropriate measures 
     to adequately reflect--
       (i) encouragement of awareness about the risk factors and 
     what can be done to eliminate or reduce them;
       (ii) location of the risk, by giving careful consideration 
     of the natural risks for the location of the property before 
     allowing building and considerations if structures are 
     allowed; and
       (iii) construction relative to the risk and hazards, which 
     act upon--

       (I) State mandated building codes appropriate for the risk;
       (II) adequate enforcement of the risk-appropriate building 
     codes;
       (III) building materials that prevent or significantly 
     lessen potential damage from the natural catastrophes;
       (IV) building methods that prevent or significantly lessen 
     potential damage from the natural catastrophes; and
       (V) a focus on prevention and mitigation for any 
     substantially damaged structure, with an emphasis on how 
     structures can be retrofitted so as to make them building 
     code compliant.

       (7) Requirements regarding coverage.--
       (A) In general.--The program--
       (i) may not, except for charges or assessments related to 
     post-event financing or bonding, involve cross-subsidization 
     between any separate property and casualty lines covered 
     under the program unless the elimination of such activity in 
     an existing program would negatively impact the eligibility 
     of the program to purchase a contract for reinsurance 
     coverage under this Act pursuant to paragraph (3);
       (ii) shall include provisions that authorize the State 
     insurance commissioner or other State entity authorized to 
     make such a determination to terminate the program if the 
     insurance commissioner or other such entity determines that 
     the program is no longer necessary to ensure the availability 
     of homeowners' insurance for all residents of the State; and
       (iii) shall provide that, for any insurance coverage for 
     homes (which may include dwellings owned under condominium 
     and cooperative ownership arrangements) and the contents of 
     apartments that is made available under the State insurance 
     program and for any reinsurance coverage for such insurance 
     coverage made available under the State reinsurance program, 
     the premium rates charged shall be amounts that, at a 
     minimum, are sufficient to cover the full actuarial costs of 
     such coverage, based on consideration of the risks involved 
     and accepted actuarial and rate making principles, 
     anticipated administrative expenses, and loss and loss-
     adjustment expenses.
       (B) Applicability.--This paragraph shall apply--
       (i) before the expiration of the 2-year period beginning on 
     the date of the enactment of this Act, only to State programs 
     which, after January 1, 2008, commence offering insurance or 
     reinsurance coverage described in subparagraph (A) or (B), 
     respectively, of paragraph (1); and
       (ii) after the expiration of such period, to all State 
     programs.
       (8) Other qualifications.--
       (A) Regulations.--
       (i) Compliance.--The State program shall (for the year for 
     which the coverage is in effect) comply with regulations that 
     shall be issued under this paragraph by the Secretary, in 
     consultation with the National Commission on Catastrophe 
     Preparation and Protection established under section 3.
       (ii) Criteria.--The regulations issued under clause (i) 
     shall establish criteria for State programs to qualify to 
     purchase reinsurance under this section, which are in 
     addition to the requirements under the other paragraphs of 
     this subsection.
       (B) Contents.--The regulations issued under subparagraph 
     (A)(i) shall include requirements that--
       (i) the State program shall have public members on its 
     board of directors or have an advisory board with public 
     members;
       (ii) the State program provide adequate insurance or 
     reinsurance protection, as applicable, for the peril covered, 
     which shall include a range of deductibles and premium costs 
     that reflect the applicable risk to eligible properties;
       (iii) insurance or reinsurance coverage, as applicable, 
     provided by the State program is made available on a 
     nondiscriminatory basis to all qualifying residents;
       (iv) 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;
       (v) the State, or 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 or greater than the resistance to 
     earthquakes or high winds;
       (vi) the State has taken actions to establish an insurance 
     rate structure that takes into account measures to mitigate 
     insurance losses;
       (vii) there are in effect, in such State, laws or 
     regulations sufficient to prohibit price gouging, during the 
     term of reinsurance coverage under this Act for the State 
     program in any disaster area located within the State; and
       (viii) the State program complies with such other 
     requirements that the Secretary considers necessary to carry 
     out the purposes of this Act.
       (b) Terms of Contracts.--Each contract under this section 
     for reinsurance coverage under this Act shall be subject to 
     the following terms and conditions:
       (1) Maturity.--The term of the contract shall not exceed 1 
     year or such longer term as the Secretary may determine.
       (2) Payment condition.--The contract shall authorize claims 
     payments for eligible losses only to the eligible State 
     program purchasing the coverage.
       (3) Retained losses requirement.--For each event of a 
     covered peril, the contract shall make a payment for the 
     event only if the total amount of insurance claims for 
     losses, which are covered by qualified lines, occur to 
     properties located within the State covered by the contract, 
     and that result from events, exceeds the amount of retained 
     losses provided under the contract (pursuant to section 8(a)) 
     purchased by the eligible State program.
       (4) Multiple events.--The contract shall--
       (A) cover any eligible losses from 1 or more covered events 
     that may occur during the term of the contract; and
       (B) provide that if multiple events occur, the retained 
     losses requirement under paragraph (3) shall apply on a 
     calendar year basis, in the aggregate and not separately to 
     each individual event.
       (5) Timing of eligible losses.--Eligible losses under the 
     contract shall include only insurance claims for property 
     covered by qualified lines that are reported to the eligible 
     State program within the 3-year period beginning upon the 
     event or events for which payment under the contract is 
     provided.
       (6) Pricing.--
       (A) Determination.--The price of reinsurance coverage under 
     the contract shall be an amount established by the Secretary 
     as follows:
       (i) Recommendations.--The Secretary shall take into 
     consideration the recommendations of the Commission in 
     establishing the price, but the price may not be less than 
     the amount recommended by the Commission.
       (ii) Fairness to taxpayers.--The price shall be established 
     at a level that--

       (I) is designed to reflect the risks and costs being borne 
     under each reinsurance contract issued under this Act; and
       (II) takes into consideration empirical models of natural 
     disasters and the capacity of private markets to absorb 
     insured losses from natural disasters.

       (iii) Self-sufficiency.--The rates for reinsurance coverage 
     shall be established 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 under this section.
       (B) Components.--The price shall consist of the following 
     components:
       (i) Risk-based price.--A risk-based price, which shall 
     reflect the anticipated annualized payout of the contract 
     according to the actuarial analysis and recommendations of 
     the Commission.
       (ii) Administrative costs.--A sum sufficient to provide for 
     the operation of the Commission and the administrative 
     expenses incurred by the Secretary in carrying out this Act.
       (7) Information.--The contract shall contain a condition 
     providing that the Commission may require a State program 
     that is covered under the contract to submit to the 
     Commission all information on the State program relevant to 
     the duties of the Commission, as determined by the Secretary.
       (8) Additional contract option.--
       (A) In general.--The contract shall provide that the 
     purchaser of the contract may, during a term of such original 
     contract, purchase additional contracts from among those 
     offered by the Secretary at the beginning of the term, 
     subject to the limitations under section 8, at the prices at 
     which such contracts were offered at the beginning of the 
     term, prorated based upon the remaining term as determined by 
     the Secretary.
       (B) Timing.--An additional contract purchased under 
     subparagraph (A) shall provide coverage beginning on a date 
     15 days after the date of purchase but shall not provide 
     coverage for losses for an event that has already occurred.
       (9) Others.--The contract shall contain such other terms as 
     the Secretary considers necessary--
       (A) to carry out this Act; and
       (B) to ensure the long-term financial integrity of the 
     program under this Act.
       (c) Participation by Multi-State Catastrophe Fund 
     Programs.--

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       (1) In general.--Nothing in this Act shall prohibit, and 
     this Act shall be construed to facilitate and encourage, the 
     creation of multi-State catastrophe insurance or reinsurance 
     programs, or the participation by such programs in the 
     program established pursuant to section 4.
       (2) Regulations.--The Secretary shall, by regulation, apply 
     the provisions of this Act to multi-State catastrophe 
     insurance and reinsurance programs.

     SEC. 8. MINIMUM LEVEL OF RETAINED LOSSES AND MAXIMUM FEDERAL 
                   LIABILITY.

       (a) Available Levels of Retained Losses.--In making 
     reinsurance coverage available under this Act, the Secretary 
     shall make available for purchase contracts for such coverage 
     that require the sustainment of retained losses from covered 
     perils (as required under section 7(b)(3) for payment of 
     eligible losses) in various amounts, as the Secretary, in 
     consultation with the Commission, determines appropriate and 
     subject to the requirements under subsection (b).
       (b) Minimum Level of Retained Losses.--
       (1) Contracts for state programs.--Subject to paragraphs 
     (3) and (4) and notwithstanding any other provision of this 
     Act, a contract for reinsurance coverage under section 7 for 
     an eligible State program that offers insurance or 
     reinsurance coverage described in subparagraph (A) or (B), 
     respectively, of section 7(a)(1), may not be made available 
     or sold unless the contract requires retained losses from 
     covered perils in the following amount:
       (A) In general.--The State program shall sustain an amount 
     of retained losses of not less than--
       (i) the claims-paying capacity of the eligible State 
     program, as determined by the Secretary; and
       (ii) an amount, determined by the Secretary in consultation 
     with the Commission, that is the amount equal to the eligible 
     losses projected to be incurred at least once every 50 years 
     on an annual basis from covered perils.
       (B) Transition rule for existing programs.--
       (i) Claims-paying capacity.--Subject to clause (ii), in the 
     case of any eligible State program that was offering 
     insurance or reinsurance coverage on the date of the 
     enactment of this Act and the claims-paying capacity of which 
     is greater than the amount determined under subparagraph 
     (A)(i) but less than an amount determined for the program 
     under subparagraph (A)(ii), the minimum level of retained 
     losses applicable under this paragraph shall be the claims-
     paying capacity of such State program.
       (ii) Agreement.--

       (I) In general.--Clause (i) shall apply to a State program 
     only if the program enters into a written agreement with the 
     Secretary providing a schedule for increasing the claims-
     paying capacity of the program to the amount determined for 
     the program under subparagraph (A)(ii) over a period not to 
     exceed 5 years.
       (II) Extension.--The Secretary may extend the 5-year period 
     under subclause (I) for not more than 5 additional 1-year 
     periods if the Secretary determines that losses incurred by 
     the State program as a result of covered perils create 
     excessive hardship on the State program.
       (III) Consultation.--The Secretary shall consult with the 
     appropriate officials of the State program regarding the 
     required schedule and any potential 1-year extensions.

       (C) Transition rule for new programs.--
       (i) 50-year event.--The Secretary may provide that, in the 
     case of an eligible State program that, after January 1, 
     2008, commences offering insurance or reinsurance coverage, 
     during the 7-year period beginning on the date that 
     reinsurance coverage under section 7 is first made available, 
     the minimum level of retained losses applicable under this 
     paragraph shall be the amount determined for the State under 
     subparagraph (A)(i), except that such minimum level shall be 
     adjusted annually as provided in clause (ii) of this 
     subparagraph.
       (ii) Annual adjustment.--Each annual adjustment under this 
     clause shall increase the minimum level of retained losses 
     applicable under this subparagraph to an eligible State 
     program described in clause (i) in a manner such that--

       (I) during the course of such 7-year period, the applicable 
     minimum level of retained losses approaches the minimum level 
     that, under subparagraph (A)(ii), will apply to the eligible 
     State program upon the expiration of such period; and
       (II) each such annual increase is a substantially similar 
     amount, to the extent practicable.

       (D) Reduction because of reduced claims-paying capacity.--
       (i) Authority.--Notwithstanding subparagraphs (A), (B), and 
     (C) or the terms contained in a contract for reinsurance 
     pursuant to such subparagraphs, if the Secretary determines 
     that the claims-paying capacity of an eligible State program 
     has been reduced because of payment for losses due to an 
     event, the Secretary may reduce the minimum level of retained 
     losses.
       (ii) Term of reduction.--

       (I) Extension.--The Secretary may extend the 5-year period 
     for not more than 5 additional 1-year periods if the 
     Secretary determines that losses incurred by the State 
     program as a result of covered perils create excessive 
     hardship on the State program.
       (II) Consultation.--The Secretary shall consult with the 
     appropriate officials of the State program regarding the 
     required schedule and any potential 1-year extensions.

       (E) Claims-paying capacity.--For purposes of this 
     paragraph, the claims-paying capacity of a State-operated 
     insurance or reinsurance program under section 7(a)(1) shall 
     be determined by the Secretary, in consultation with the 
     Commission, taking into consideration the claims-paying 
     capacity as determined by the State program, retained losses 
     to private insurers in the State in an amount assigned by the 
     State insurance commissioner, the cash surplus of the 
     program, and the lines of credit, reinsurance, and other 
     financing mechanisms of the program established by law.
       (c) Maximum Federal Liability.--
       (1) In general.--Notwithstanding any other provision of 
     law, the Secretary may sell only contracts for reinsurance 
     coverage under this Act in various amounts that comply with 
     the following requirements:
       (A) Estimate of aggregate liability.--The aggregate 
     liability for payment of claims under all such contracts in 
     any single year is unlikely to exceed $200,000,000,000 (as 
     such amount is adjusted under paragraph (2)).
       (B) Eligible loss coverage sold.--Eligible losses covered 
     by all contracts sold within a State during a 12-month period 
     do not exceed the difference between the following amounts 
     (each of which shall be determined by the Secretary in 
     consultation with the Commission):
       (i) The amount equal to the eligible loss projected to be 
     incurred once every 500 years from a single event in the 
     State.
       (ii) The amount equal to the eligible loss projected to be 
     incurred once every 50 years from a single event in the 
     State.
       (2) Annual adjustments.--The Secretary shall annually 
     adjust the amount under paragraph (1)(A) (as it may have been 
     previously adjusted) to provide for inflation in accordance 
     with an inflation index that the Secretary determines to be 
     appropriate.
       (d) Limitation on Percentage of Risk in Excess of Retained 
     Losses.--
       (1) In general.--The Secretary may not make available for 
     purchase contracts for reinsurance coverage under this Act 
     that would pay out more than 100 percent of eligible losses 
     in excess of retained losses in the case of a contract under 
     section 7 for an eligible State program, for such State.
       (2) Payout.--For purposes of this subsection, the amount of 
     payout from a reinsurance contract shall be the amount of 
     eligible losses in excess of retained losses multiplied by 
     the percentage under paragraph (1).

     SEC. 9. CONSUMER HURRICANE, EARTHQUAKE, LOSS PROTECTION 
                   (HELP) FUND.

       (a) Establishment.--There is established within the 
     Treasury of the United States a fund to be known as the 
     Consumer HELP Fund (in this section referred to as the 
     ``Fund'').
       (b) Credits.--The Fund shall be credited with--
       (1) amounts received annually from the sale of contracts 
     for reinsurance coverage under this Act;
       (2) any amounts borrowed under subsection (d);
       (3) any amounts earned on investments of the Fund pursuant 
     to subsection (e); and
       (4) such other amounts as may be credited to the Fund.
       (c) Uses.--Amounts in the Fund shall be available to the 
     Secretary only for the following purposes:
       (1) Contract payments.--For payments to covered purchasers 
     under contracts for reinsurance coverage for eligible losses 
     under such contracts.
       (2) Commission costs.--To pay for the operating costs of 
     the Commission.
       (3) Administrative expenses.--To pay for the administrative 
     expenses incurred by the Secretary in carrying out the 
     reinsurance program under this Act.
       (4) Termination.--Upon termination under section 11, as 
     provided in such section.
       (d) Borrowing.--
       (1) Authority.--To the extent that the amounts in the Fund 
     are insufficient to pay claims and expenses under subsection 
     (c), the Secretary--
       (A) may issue such obligations of the Fund as may be 
     necessary to cover the insufficiency; and
       (B) shall purchase any such obligations issued.
       (2) Public debt transaction.--For the purpose of purchasing 
     any such obligations under paragraph (1)--
       (A) the Secretary may use as a public debt transaction the 
     proceeds from the sale of any securities issued under chapter 
     31 of title 31, United States Code; and
       (B) the purposes for which such securities are issued under 
     such chapter are hereby extended to include any purchase by 
     the Secretary of such obligations under this subsection.
       (3) Characteristics of obligations.--Obligations issued 
     under this subsection shall be in such forms and 
     denominations, bear such maturities, bear interest at such 
     rate, and be subject to such other terms and conditions, as 
     the Secretary shall determine.
       (4) Treatment.--All redemptions, purchases, and sales by 
     the Secretary of obligations under this subsection shall be 
     treated as public debt transactions of the United States.
       (5) Repayment.--Any obligations issued under this 
     subsection shall be--
       (A) repaid including interest, from the Fund; and

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       (B) recouped from premiums charged for reinsurance coverage 
     provided under this Act.
       (e) Investment.--If the Secretary determines that the 
     amounts in the Fund are in excess of current needs, the 
     Secretary may invest such amounts as the Secretary considers 
     advisable in obligations issued or guaranteed by the United 
     States.
       (f) Prohibition of Federal Funds.--Except for amounts made 
     available pursuant to subsection (d) and section 3(h), no 
     further Federal funds shall be authorized or appropriated for 
     the Fund or for carrying out the reinsurance program under 
     this Act.

     SEC. 10. REGULATIONS.

       The Secretary, in consultation with the Secretary of the 
     Department of Homeland Security, shall issue any regulations 
     necessary to carry out the program for reinsurance coverage 
     under this Act.

     SEC. 11. TERMINATION.

       (a) In General.--Except as provided in subsection (b), the 
     Secretary may not provide any reinsurance coverage under this 
     Act covering any period after the expiration of the 20-year 
     period beginning on the date of the enactment of this Act.
       (b) Extension.--If upon the expiration of the period under 
     subsection (a) the Secretary, in consultation with the 
     Commission, determines that continuation of the program for 
     reinsurance coverage under this Act is necessary or 
     appropriate to carry out the purpose of this Act under 
     section 4(b) because of insufficient growth of capacity in 
     the private homeowners' insurance market, the Secretary shall 
     continue to provide reinsurance coverage under this Act until 
     the expiration of the 5-year period beginning upon the 
     expiration of the period under subsection (a).
       (c) Repeal.--Effective upon the date that reinsurance 
     coverage under this Act is no longer available or in force 
     pursuant to subsection (a) or (b), this Act (except for this 
     section) is repealed.
       (d) Deficit Reduction.--The Secretary shall cover into the 
     General Fund of the Treasury any amounts remaining in the 
     Fund under section 9 upon the repeal of this Act.

     SEC. 12. ANNUAL STUDY CONCERNING BENEFITS OF THE ACT.

       (a) In General.--The Secretary shall, on an annual basis, 
     conduct a study and submit to the Congress a report that--
       (1) analyzes the cost and availability of homeowners' 
     insurance for losses resulting from catastrophic natural 
     disasters covered by the reinsurance program under this Act;
       (2) describes the efforts of the participating States in--
       (A) enacting preparedness, prevention, mitigation, 
     recovery, and rebuilding standards; and
       (B) educating the public on the risks associated with 
     natural catastrophe; and
       (3) makes recommendations regarding ways to improve the 
     program under this Act and its administration.
       (b) Contents.--Each annual study under this section shall 
     also determine and identify, on an aggregate basis--
       (1) for each State or region, the capacity of the private 
     homeowners' insurance market with respect to coverage for 
     losses from catastrophic natural disasters;
       (2) for each State or region, the percentage of homeowners 
     who have such coverage, the catastrophes covered, and the 
     average cost of such coverage; and
       (3) for each State or region, the effects this Act is 
     having on the availability and affordability of such 
     insurance.
       (c) Timing.--Each annual report under this section shall be 
     submitted not later than March 30 of the year after the year 
     for which the study was conducted.
       (d) Commencement of Reporting Requirement.--The Secretary 
     shall first submit an annual report under this section not 
     later than 2 years after the date of the enactment of this 
     Act.

     SEC. 13. GAO STUDY OF THE NATIONAL FLOOD INSURANCE PROGRAM 
                   AND HURRICANE-RELATED FLOODING.

       (a) In General.--In light of the flooding associated with 
     Hurricane Katrina, the Comptroller General of the United 
     States shall conduct a study of the availability and adequacy 
     of flood insurance coverage for losses to residences and 
     other properties caused by hurricane-related flooding.
       (b) Contents.--The study under this section shall determine 
     and analyze--
       (1) the frequency and severity of hurricane-related 
     flooding during the last 20 years in comparison with flooding 
     that is not hurricane-related;
       (2) the differences between the risks of flood-related 
     losses to properties located within the 100-year floodplain 
     and those located outside of such floodplain;
       (3) the extent to which insurance coverage referred to in 
     subsection (a) is available for properties not located within 
     the 100-year floodplain;
       (4) the advantages and disadvantages of making such 
     coverage for such properties available under the national 
     flood insurance program;
       (5) appropriate methods for establishing premiums for 
     insurance coverage under such program for such properties 
     that, based on accepted actuarial and rate making principles, 
     cover the full costs of providing such coverage;
       (6) appropriate eligibility criteria for making flood 
     insurance coverage under such program available for 
     properties that are not located within the 100-year 
     floodplain or within a community participating in the 
     national flood insurance program;
       (7) the appropriateness of the existing deductibles for all 
     properties eligible for insurance coverage under the national 
     flood insurance program, including the standard and variable 
     deductibles for pre-FIRM and post-FIRM properties, and 
     whether a broader range of deductibles should be established;
       (8) income levels of policyholders of insurance made 
     available under the national flood insurance program whose 
     properties are pre-FIRM subsidized properties;
       (9) how the national flood program is marketed, if changes 
     can be made so that more people are aware of flood coverage, 
     and how take-up rates may be improved;
       (10) the number of homes that are not primary residences 
     that are insured under the national flood insurance program 
     and are pre-FIRM subsidized properties; and
       (11) suggestions and means on how the program under this 
     Act can better meet its stated goals as well as the 
     feasibility of expanding the national flood insurance program 
     to cover the perils covered by this Act.
       (c) Consultation With FEMA.--In conducting the study under 
     this section, the Comptroller General shall consult with the 
     Administrator of the Federal Emergency Management Agency.
       (d) Report.--The Comptroller General shall complete the 
     study under this section and submit a report to the Congress 
     regarding the findings of the study not later than 5 months 
     after the date of the enactment of this Act.

     SEC. 14. DEFINITIONS.

       For purposes of this Act, the following definitions shall 
     apply:
       (1) Commission.--The term ``Commission'' means the National 
     Commission on Catastrophe Preparation and Protection 
     established under section 3.
       (2) Covered perils.--The term ``covered perils'' means the 
     natural disaster perils under section 6.
       (3) Covered purchaser.--The term ``covered purchaser'' 
     means an eligible State-operated insurance or reinsurance 
     program that purchases reinsurance coverage made available 
     under a contract under section 7.
       (4) Disaster area.--The term ``disaster area'' means a 
     geographical area, with respect to which--
       (A) a covered peril specified in section 6 has occurred; 
     and
       (B) a declaration that a major disaster exists, as a result 
     of the occurrence of such peril--
       (i) has been made by the President of the United States; 
     and
       (ii) is in effect.
       (5) Eligible losses.--The term ``eligible losses'' means 
     losses in excess of the sustained and retained losses, as 
     defined by the Secretary after consultation with the 
     Commission.
       (6) Eligible state program.--The term ``eligible State 
     program'' means--
       (A) a State program that, pursuant to section 7(a), is 
     eligible to purchase reinsurance coverage made available 
     through contracts under section 7; or
       (B) a multi-State program that is eligible to purchase such 
     coverage pursuant to section 7(c).
       (7) Price gouging.--The term ``price gouging'' means the 
     providing of any consumer good or service by a supplier 
     related to repair or restoration of property damaged from a 
     catastrophe for a price that the supplier knows or has reason 
     to know is greater, by at least the percentage set forth in a 
     State law or regulation prohibiting such act (notwithstanding 
     any real cost increase due to any attendant business risk and 
     other reasonable expenses that result from the major 
     catastrophe involved), than the price charged by the supplier 
     for such consumer good or service immediately before the 
     disaster.
       (8) Qualified lines.--The term ``qualified lines'' means 
     lines of insurance coverage for which losses are covered 
     under section 5 by reinsurance coverage under this Act.
       (9) Reinsurance coverage.--The term ``reinsurance coverage 
     under this Act'' means coverage under contracts made 
     available under section 7.
       (10) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury.
       (11) State.--The term ``State'' means the States of the 
     United States, the District of Columbia, the Commonwealth of 
     Puerto Rico, the Commonwealth of the Northern Mariana 
     Islands, Guam, the Virgin Islands, American Samoa, and any 
     other territory or possession of the United States.
                                 ______