Congressional Record, Volume 153 Issue 173 (Thursday, November 8, 2007)

[Congressional Record Volume 153, Number 173 (Thursday, November 8, 2007)]
[House]
[Pages H13337-H13358]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

HOMEOWNERS' DEFENSE ACT OF 2007

The SPEAKER pro tempore. Pursuant to House Resolution 802 and rule
XVIII, the Chair declares the House in the Committee of the Whole House
on the state of the Union for the consideration of the bill, H.R. 3355.

{time} 1510

In the Committee of the Whole

Accordingly, the House resolved itself into the Committee of the
Whole House on the state of the Union for the consideration of the bill
(H.R. 3355) to ensure the availability and affordability of homeowners'
insurance coverage for catastrophic events, with Mr. Ross in the chair.
The Clerk read the title of the bill.
The CHAIRMAN. Pursuant to the rule, the bill is considered read the
first time.
The gentleman from Florida (Mr. Klein) and the gentlewoman from West
Virginia (Mrs. Capito) each will control 30 minutes.
The Chair recognizes the gentleman from Florida.
Mr. KLEIN of Florida. Mr. Chairman, I yield myself such time as I may
consume.
Mr. Chairman, I rise today to discuss H.R. 3355, the Homeowners'
Defense Act. This bill responds to the growing crisis in the
availability and affordability of homeowners insurance and further
works to protect the financial solvency of States. This bipartisan
legislation represents many months of deliberation and thoughtful input
from members of both parties and across each region of the United
States. We recognize that disasters will continue to occur across the
country and are moving proactively to ensure that a plan is in place
before the next one strikes.
Every region of the United States is susceptible to some form of
natural disaster, be it earthquakes, hurricanes, blizzards, tornadoes,
or wildfires, and we are here to provide relief.
It is important to understand that insurance availability and
affordability problems have become a national issue. Hundreds of
thousands of homeowners across the country have already had their
insurance coverage dropped or are currently slated for nonrenewal by
their insurance company. Those who remain insured are confronted with
crippling premiums, which in some cases is forcing homeowners to make
tough decisions about whether to go with or without property insurance,
if they have that choice.
Insurance problems are not isolated to Florida, Mississippi, or
Louisiana. Last year property insurers indicated that they plan to stop
offering new coverage in Maryland and Virginia's

[[Page H13338]]

coastal markets, and property insurers have also stopped writing new
policies for residents in Delaware, New Jersey, and Connecticut, no
matter where in the State the property is located.
Furthermore, tens of thousands of homeowners in Massachusetts, New
York, North Carolina, South Carolina, Alabama, and Texas have also been
dropped as well. And adding to that, even with California's known
record of seismic activity, over 84 percent of California homeowners
currently do not have earthquake policies. It is simply unacceptable
for property owners not to be able to get reliable coverage in these
markets, and it is precisely this reason that legislation is necessary.
The Homeowners' Defense Act aims to take a twofold approach by
establishing a program to help States responsibly manage their risk
before disaster strikes while also providing financial assistance to
ensure that they can quickly and efficiently respond to homeowners
insurance claims following a natural disaster.
Specifically, this bill provides a venue for State-sponsored
insurance funds to voluntarily bundle their catastrophic risk with one
another and then transfer that risk to the private markets through the
use of catastrophic bonds and reinsurance contracts. The legislation
also allows for the Federal Government to extend loans to cash-strapped
States after a large-scale natural disaster so that they can meet their
obligations to homeowners.
By utilizing new strategies and an innovative capital market
approach, the bill allows investors to assume some of the risk
currently held by the States in return for an interest payment. The
voluntary nature of the program, coupled with the use of the capital
markets, ensures that homeowners in less disaster-prone States will not
be on the hook if a disaster strikes a neighboring State.
I want to emphasize that the opt-in nature of this plan creates no
burden or obligation whatsoever on States that do not choose to
participate. This is essential.
The total economic impact accompanying natural disasters resonates
throughout our entire Nation. The total economic damages from the 2005
hurricanes will likely exceed $200 billion, with the Federal Government
taking responsibility for paying out in excess of $109 billion for
disaster relief.

{time} 1515

Although we all agree that it is necessary, this Federal spending is
drawn equally from taxpayers across the country, not simply from those
in affected regions.
Through this legislation, we are looking to take a proactive approach
where States responsibly plan in advance of a disaster, rather than a
reactive approach, where the Federal Government and every taxpayer
opens up the Treasury after a catastrophe. It is important to
emphasize, however, that the status quo is no longer an option. We must
work together to establish a system to make sure that property
insurance is both available and affordable for hardworking families and
those most in need.
I urge Members to vote in favor of this much-needed legislation.
Mr. Chairman, I reserve the balance of my time.
Mrs. CAPITO. Mr. Chairman, I yield myself such time as I may consume.
First of all, I would like to thank the two gentlemen from Financial
Services from Florida for bringing this bill forward.
Mr. Chairman, we are all concerned about insurance rates that are
increasing in Florida and other States. Representatives Brown-Waite,
Putnam, Buchanan and Feeney have all been very effective and passionate
advocates for their constituencies, and I would like to commend them
for their hard work.
We can all agree that many States are facing considerable problems
with the affordability of homeowners insurance. However, at this point,
there is no consensus that H.R. 3355 is the best solution to the
problem. In fact, there is quite a bit of disagreement amongst a broad
spectrum as to what is the best manner to address this problem. Instead
of granting long-term relief to middle-income coastal homeowners
confronted with rising insurance costs, this bill could potentially
place taxpayers at risk for bailing out insolvent State insurance
companies.
In the past few years, some of the largest hurricanes on record tore
through the gulf coast and coastal Florida. Some of the affected States
have tried to protect their local markets, to limit rate increases,
force coverage, or restrict market freedom. Unfortunately, these
efforts have had severe unintended consequences and have done little to
lower the cost of insurance for consumers. Competition has been reduced
and homeowners have been left with fewer choices. Ironically, State
initiatives designed to secure more coverage for their constituents
have resulted in less affordability.
Florida created Citizens Property Insurance Corporation in 2002
because private insurers have reservations about insuring risky coastal
development. While Citizens was supposed to be an insurer of last
resort, it is now Florida's largest insurer, with over 1.3 million
policyholders, and a total exposure of $434 billion, yet only enough
funding to pay approximately $9.4 billion in claims. This
undercapitalization means that if a major hurricane hits Florida,
Citizens could be bankrupt by hundreds of billions of dollars.
To bring down the cost of insurance even more, Florida created a
State reinsurance fund to sell inexpensive reinsurance to private
companies to encourage them to write more business in the State. This
fund has never had enough cash on hand to pay claims and has driven out
the global reinsurance market, recouping losses through taxpayer
assessments. According to a Georgetown University report released last
summer, the Florida catastrophe fund offers $32 billion in coverage and
has $1 billion on hand.
Of the two main titles of the bill, H.R. 3355, the first doesn't add
anything new that States cannot already do on their own. The second one
makes inexpensive federally subsidized loans available to State
insurance companies that are curtailing the private market, resulting
in less competition and higher costs to the customer. And I will add
here that anytime you're federally subsidizing somebody, that's a cost
to every single taxpayer in the country.
The Congressional Budget Office estimates that over the next 5 years
implementing this bill would cost $75 million, but even this number
seriously underestimates the true cost to the American taxpayers. CBO
concluded that few States would actually be interested in these loans
and that they would only be made on rare occasions. Nevertheless,
taxpayers could potentially be exposed to billions of dollars, leaving
them with an enormous cost of capital for the loan's duration and
subjecting leaders here in Congress to the inevitable pressure to later
forgive loans at the taxpayers' expense.
Mr. Chairman, the federally headed consortium provided for in this
bill, while a novel approach, likely offers nothing but an implicit
Federal backing for any insured securities, much like the GSEs; not to
mention States already have the ability to engage in these pooling
arrangements at this day. Further emphasized in the President's
Statement of Administration Policy on this bill: ``There is no need for
a Federal role because States are currently free to associate to
address catastrophic risk.''
It is also debatable whether securitization represents any
significant advantages over the sophisticated private reinsurance
markets. According to the Georgetown Environmental Law and Policy
Institute: ``The mere creation of this consortium would likely skew
insurance premiums and encourage unwise development.''
Of concern as well is that the Treasury would make loans to State
catastrophe programs. Florida is currently the only State with a
reinsurance fund that would qualify for these loans, but there is no
doubt that this bill would encourage other States to create these
programs, most likely in the Florida mode, further undermining the
private market.
The legislation at hand even allows an interim period where other
state-run insurers, such as the financially troubled Citizens in
Florida, could receive these loans. We should think twice about
bankrolling State insurance companies. A Federal loan to an insolvent
State catastrophe fund sounds eerily similar to me to the Federal
Government's ongoing loan to the

[[Page H13339]]

National Flood Insurance Program, which is currently carrying $18
billion in debt.
Republicans will offer a number of critical amendments today to try
to steer this debate towards fiscal responsibility, mitigation, and
free market competition. We will consider an amendment by Congressman
Shays to replace the text of the bill with a bipartisan, blue-ribbon
commission to report to Congress specific proposals to improve the
affordability and availability of national catastrophe insurance. It
would be very prudent of this body to take a step back, allow for
further study, and gain a consensus that we do not have on this
proposal before us today.
Mr. Chairman, we need to be careful when confronting this very
complex issue affecting millions of homeowners that could expose all
American taxpayers to huge liabilities, and we shouldn't rush to
judgment for an appropriate response.
All of us Members of Congress here know that natural disasters can
strike anywhere and everywhere in this country; and by no means are we
saying, in opposition to this bill, that we shouldn't have the American
response of a helping hand. We just don't feel that this is the right
way to do it. We need to work together on bipartisan reforms to address
market dysfunction. I think H.R. 3355 falls short on that standard.
There will be many productive ideas put forward this afternoon that
will improve the legislation that we're considering; however, if these
are not adopted, I would urge my colleagues to vote against this bill.
Mr. Chairman, I reserve the balance of my time.
Mr. KLEIN of Florida. Mr. Chairman, I yield 6\1/2\ minutes to the
gentleman from Florida (Mr. Mahoney).
Mr. MAHONEY of Florida. Mr. Speaker, today is a turning point for how
the Federal Government responds to natural catastrophes. Today, the
House of Representatives has the ability to ensure that homeowners
across the country will have access to affordable property insurance.
More importantly, we have the opportunity to protect and preserve the
American Dream of home ownership with the passage of H.R. 3355, the
Homeowners' Defense Act of 2007.
Before I begin summarizing the national catastrophe insurance crisis
affecting the 16th Congressional District of Florida, I want to
reiterate that this is a national problem. Let me be clear: Congress
has been forced to act because private markets for homeowners insurance
have failed. The issue is not the industry's ability to pay claims or
write policies. It is the American's ability to purchase affordable
homeowners insurance.
This legislation we are considering today, the Homeowners' Defense
Act of 2007, is essential, as an individual's home is the single
biggest investment an average American has, and it is vital that we
protect it.
North America has the greatest occurrence of natural disasters of any
continent. And thanks to global warming, science is forecasting that we
are going to see the incidence and severity of disasters increase.
I am proud that the legislation we are considering today preserves
the private homeowners insurance industry. H.R. 3355 recognizes that no
one got into the insurance business to underwrite a catastrophic event,
whether it be an act of war or an act of Mother Nature. The bill gives
the insurance industry the ability to operate without fear of
insolvency due to a mega-catastrophe we all know will happen. However,
because no one can predict when the next earthquake, hurricane or
tornado will strike, the industry is forced to plan and incur the
expense necessary to cover a 1-in-200 year event every year.
The program established by this legislation is voluntary. Each State
will have the opportunity to assess its risk of natural catastrophes.
After analyzing its exposure to natural catastrophes, a State can
choose to participate or not.
H.R. 3355 is fiscally responsible. The legislation sets a historic
precedent. No longer will the American taxpayer have to foot the cost
of a natural disaster with an expensive government bailout. As I said
earlier, we know that these catastrophic events will happen. The
Homeowners' Defense Act ensures that we plan for them in a fiscally
responsible manner and does not cost the American taxpayer a dime,
while ensuring that homeowners take personal responsibility for their
choice to live in areas prone to more frequent natural catastrophes.
In 2004 and 2005, natural disasters resulted in approximately $89
billion in privately insured catastrophic losses. Science tells us that
these disasters, their severity and frequency, are going to increase
and have caused the insurance industry to adjust their models for
insuring these events. As a result, insurers are pulling out or
reducing their exposure in disaster-prone areas of the country. In some
cases, new companies encouraged to enter the market do not have the
financial strength to pay claims following a natural disaster because
they are undercapitalized. Likewise, larger insurance companies have
created smaller State subsidiaries for the purpose of limiting their
liability. This problem has concentrated risk in States, further
complicating the problem.
In some situations, like in my home State of Florida, the market has
deteriorated so drastically homeowners can't get insurance, regardless
of price. In an effort to address this growing problem, Florida has had
to step up to avert an economic disaster by creating a State-owned
insurance company. Today, unfortunately, the citizens of my State are
the owners of the biggest homeowners insurance company in Florida with
over 30 percent of the market.
Lost insurance capacity is not the only issue confronting homeowners
today. Families have seen their insurance premiums skyrocket. The toxic
cocktail of rising gas prices, health care costs, and homeowners
insurance have created a vicious cycle of terror for our seniors living
on fixed incomes and our middle-class families struggling to provide
for their children.
Just yesterday, I spoke with a single mother in Stuart, Florida, who
is making a good income of approximately $60,000 per year. She told me
that, without warning, her monthly payment went up almost $500 per
month. She is struggling to save money to put her daughter through
college, and she's fearful she won't be able to pay her bills.
The Financial Services Committee has held numerous hearings this year
on this issue. During these hearings, several facts became clear. The
risk posed by natural catastrophes is not going away. The damage caused
by disasters will keep growing, and insurance premiums are likely to
remain high.
As Congressman Klein noted, the Homeowners' Defense Act is a two-
pronged approach designed to address the property insurance crisis,
which I have outlined, and ensures a stable insurance market that will
give States impacted by severe natural catastrophes the ability to help
their citizens rebuild their homes and their lives.
Title II of the bill, ``The National Homeowners Insurance
Stabilization Program,'' extends Federal loans to States impacted by
severe natural disasters. These loans, which will be paid back by the
States, will allow a State's catastrophe program the ability to cover
its liability in the event it is not fully funded at the time of the
disaster.
Because the legislation utilizes private capital markets and a loan
program that requires repayment in affected States, it eliminates
cross-subsidization. Taxpayers will not be asked to subsidize
homeowners that choose to live in high-risk communities.
In a letter dated November 6, the National Association of Insurance
Commissioners stated that H.R. 3355 provides a viable solution for the
State and Federal governments to work together to address this dilemma
and address the natural catastrophe threat.
In closing, I would like to thank Chairman Frank, Congressman
Kanjorski and Congresswoman Maxine Waters, as well as their staff, for
their continued commitment to America's homeowners. Their support and
leadership has been essential to making this legislation a reality. I
would also like to thank my colleagues from Florida, Representatives
Ginny Brown-Waite and Adam Putnam. Their input on this legislation has
been invaluable and serves as an example of what Congress can achieve
when we work together in a bipartisan manner.

[[Page H13340]]

I would ask my colleagues to stand up for the American homeowner and
taxpayer by voting ``yes'' on H.R. 3355.

{time} 1530

Mrs. CAPITO. Mr. Chairman, I would like to yield 3 minutes to the
gentleman from Illinois (Mr. Roskam), a member of the Financial
Services Committee.
Mr. ROSKAM. I thank the gentlewoman for yielding.
I want to commend our colleagues on the other side of the aisle from
Florida as good advocates for their districts in recognizing that
Florida has a serious problem. I think that if everybody had that same
confidence that Federal taxpayers weren't going to be involved and that
this ultimately was an insurance program that was going to be
completely clearly funded, the money was going to come in, it was
actuarially sound, and it was going to go out, a lot of us would say
``no harm, no foul, great.''
But a lot of us have a real sense of concern because what we have
done is we have looked at Florida, and my conclusion is that part of
the problem of Florida and the difficulty that they are facing is
because of governmental intervention in the insurance marketplace. It
seems to me that the State of Florida came in and began to manipulate
the marketplace insofar as other companies then ultimately made
decisions, ``look, this is too high maintenance, this is too
complicated, we are not able to price this appropriately, we are out of
here.''
We heard testimony during the Financial Services Committee from folks
who said the depth and breadth of building in Florida, in many cases,
is simply inappropriate, building in very risky areas. Now, the bill
speaks to some to mitigation, but I think we can do much better. And
over the course of this afternoon, in a series of amendments that we
intend to offer, some of them on the manager's amendment and some of
them specific roll calls that we will be seeking, we are going to try
and drive the conversation toward market solutions to this problem.
We are told time and again, I have heard both speakers this afternoon
on the other side talk about an opt-in, talk as if this is a voluntary
program. Well, I will tell you what; it is not a voluntary program for
the Federal taxpayers that I represent. Federal taxpayers that I
represent, I believe, are ultimately going to be on the hook for the
liabilities and the commitments that are made either explicitly or
implicitly through the language of this bill.
I urge a great sense of caution not to get caught up in the emotion
of this, but to be clear-eyed and clear-thinking in how we debate this,
and ultimately to oppose this bill in its current form.
Mr. KLEIN of Florida. Mr. Chairman, I yield 1 minute to the
gentlewoman from Florida (Ms. Wasserman Schultz).
Ms. WASSERMAN SCHULTZ. Mr. Chairman, I rise today in support of the
Homeowners' Defense Act of 2007.
Over the past few years, most Americans have witnessed devastating
images of natural catastrophes strike our fellow citizens, from
wildfires in California, tornadoes in the Midwest, to the hurricanes
hitting the Gulf States in Florida, and wondered if they might be next.
Even as the recovery begins after these disasters, for many, a new
nightmare of rising insurance rates and dropped policy coverage begins.
However, thanks to the sponsor of the Homeowners' Defense Act of 2007,
Congressmen Ron Klein and Tim Mahoney, many homeowners across America
will be spared a similar nightmare. This bipartisan bill, and it is
good to see my colleagues on the other side of the aisle from Florida
here as well, this bipartisan bill provides a critical tool that will
help provide a fair and equitable solution to this crisis.
I cannot think of an issue that is more important to the economic
survival of the homeowners of my State of Florida than dealing with the
homeowners insurance crisis. Thank you, Congressmen Klein and Mahoney,
and thank you to Chairman Barney Frank for bringing this bill to the
floor today. It has been a long time in coming.
I urge Members to support it.
Mrs. CAPITO. Mr. Chairman, I would like to yield 3 minutes to the
gentleman from Florida (Mr. Buchanan).
Mr. BUCHANAN. Mr. Chairman, there is no larger issue in my home State
of Florida than the high cost of homeowners insurance. Like many
Floridians, my constituents are finding property insurance more
expensive and, many times, impossible to get. Skyrocketing insurance is
hurting the middle class and it is damaging our real estate market and
our economy. Insurance in the State of Florida has gone up 385 percent
in last 5 years, 77 percent a year.
This bill is necessary to encourage insurance companies to write
policies that will work for families and small businesses that they can
afford. One of our businesses, and I don't want to leave them out
either, in our community, their insurance went from $25,000 to
$125,000. They called me and asked me what could they do. I said,
``Well, get some other prices.'' He called back and said there was
nobody else that will even write it. One insurance company. They had to
have it because they had a mortgage.
I am pleased the House will pass a manager's amendment that includes
language authorized by my colleague Ginny Brown-Waite. I want to thank
her for her leadership on this effort for the last 3 years. She is
going to establish a Federal catastrophic fund. This amendment mirrors
legislation I introduced with her at the beginning of the year. I also
want to thank my Florida colleagues Congressman Tim Mahoney and
Congressman Ron Klein for introducing this legislation.
Mr. Chairman, I am proud that we have been able to work on a
bipartisan basis in Florida.
Mr. KLEIN of Florida. Mr. Chairman, I yield 2 minutes to the
gentlewoman from New York (Mrs. Maloney).
Mrs. MALONEY of New York. Mr. Chairman, I rise in support and thank
Congressmembers Klein and Mahoney for their leadership.
I have long held the belief that we need solutions to the growing
crisis of availability and affordability of homeowner insurance. That
is why I was the sponsor of the National Catastrophe Insurance Act in
previous congresses, which would have established a Federal reinsurance
plan following a disaster with more than $50 billion in insured losses.
Right now we are seeing the consequences of not having these products
available. In the wake of a series of devastating hurricanes, large
swaths of our country are seeing insurance companies either leaving the
market or premiums that are simply too high for homeowners to afford.
The legislation before us focuses on stabilizing the catastrophic
insurance market by expanding private insurance capacity to cover
natural disasters and by helping States better manage risk. This
legislation allows States to participate in the plan by allowing their
State-sponsored insurance funds to voluntarily pool their catastrophic
risk with one another.
The private market, and not taxpayers, will take on the risk through
the purchasing of catastrophic bonds and reinsurance contracts. Just as
I support other efforts such as TRIA to provide certainty after
catastrophic events, I believe it is prudent to put in place a system
that insures risk. This allows affected communities and our economy as
a whole to respond to each and every disaster in a clear and rational
manner while protecting the residents, and I urge my colleagues to
support the bill.
Mrs. CAPITO. Mr. Chairman, I yield 3 minutes to the gentlewoman from
Florida (Ms. Ginny Brown-Waite) who has been very active on this issue.
Ms. GINNY BROWN-WAITE of Florida. I thank the gentlewoman for
yielding time.
The bill that we have before us today is one that is not just about
Florida. The bill that is before us today is about the availability of
any State being able to participate if they form a catastrophic fund in
their State. Whether it is hurricanes in Florida or earthquakes or
perhaps wildfires in California, whatever the State wants to cover in
their catastrophic fund is what would be covered.
Let me point out also that this is purely voluntary. This isn't
mandatory. We are not mandating States to participate. We are
encouraging States to be responsible. Sometimes we tend to, especially
at the Federal level, we tend to wait until something happens

[[Page H13341]]

and then we react. Well, we all remember how many hurricanes hit,
Hurricane Katrina, but other hurricanes also in 2005.
As a matter of fact, in 2005, the Federal taxpayer alone paid $89.6
billion in post-disaster assistance. That is post disaster. That is
after the fact. Wouldn't it be better to encourage States with some
Federal backstop to work to have a plan there to plan and have the
availability of a catastrophic fund?
I have served on the Financial Services Committee now, this is my
third term. I have spent 5 years on the Financial Services Committee. I
want to thank the gentleman who just walked in, Chairman Barney Frank,
who has worked in a very bipartisan manner to help get this bill in the
form that it is today. Later we will be seeing the manager's amendment.
I certainly want to thank Representatives Klein and Mahoney and their
great staffs and also Annie Woeber from my staff, who I think lives,
eats, drinks and breathes this issue.
Mr. KLEIN of Florida. Mr. Chairman, I yield 2 minutes to the
gentleman from Florida (Mr. Wexler).
Mr. WEXLER. Mr. Chairman, opponents of the Homeowners' Defense Act
suggest we should not get caught up in the emotion of the moment. But,
Mr. Chairman, our Nation is suffering from a property insurance crisis
that desperately demands Federal action.
Millions of American homeowners are enduring the skyrocketing costs
of homeowner insurance premiums at the same time that their coverage is
reduced. And millions more in Florida and throughout the Nation have
had their policies cancelled. Those fortunate enough to still have
coverage have experienced 200 and 300 percent increases in premiums,
even though they have not filed a single claim. This is a terrible
situation. I applaud Congressmen Klein and Mahoney for leading this
critical effort.
The insurance crisis is not a Florida-specific crisis, nor is it a
coastal only crisis. Homeowners across the Nation are starting to see
the same premium increases and cancellations that Floridians have
endured for the past several years.
Let me be clear. This is a crisis that affects each and every State
in our Nation. As we have tragically seen in recent weeks and months,
all Americans are vulnerable to hurricanes, floods, fires and other
natural disasters. The economic impact of these catastrophes do not
recognize State borders. We must act together as Americans to end this
insurance crisis.
This bill brings substantial savings to homeowners without degrading
the private insurance market. It would be inexcusable for Congress to
waste this golden opportunity to provide relief to millions of
Americans suffering from the devastating combination of rising gas
prices, health care costs, and homeowners insurance. Again, thank you
to Mr. Klein, thank you to Mr. Mahoney, thank you for the time.
Mrs. CAPITO. Mr. Chairman, I would like to yield 2 minutes to the
gentleman from Florida (Mr. Bilirakis).
Mr. BILIRAKIS. Mr. Chairman, in the early morning hours of August 29,
2005, a catastrophe obliterated New Orleans. The ocean had breached the
city's levees and our Nation looked on while tens of thousands clung to
rooftops. Hundreds of thousands of Americans were suddenly homeless and
scattered across the country. Many coastal States have been in crisis
ever since, including my home State of Florida.
Upon arriving in Congress this year, I introduced two bills to help
with this crisis. One bill would strongly encourage homeowners to
hurricane-proof their homes by providing a tax credit for the cost of
specific home modifications. The second bill I introduced would
authorize Gulf Coast States to enter into an interstate compact to pool
their resources and spread the risk of disaster.
Today, I am pleased to have an opportunity to vote on H.R. 3355, the
Homeowners' Defense Act. This important legislation authorizes loans to
States that will have to be repaid to the Treasury. This is a fiscally
sound approach to disaster planning. Further, Chairman Frank, with my
colleague, Ms. Brown-Waite, who has been working on this issue for 4
years, and the sponsors of this bill, and as a result of genuine
bipartisanship, the manager's amendment will implement a critically
needed Federal catastrophe fund.
I thank the sponsors of this legislation, and I thank the chairman
and Ms. Brown-Waite for their efforts in bringing this bill to the
floor. I strongly encourage my colleagues to vote for this bill and the
manager's amendment and protect Americans from the devastating effects
of natural disasters.
Mr. KLEIN of Florida. Mr. Chairman, may I inquire as to the time we
have remaining.
The CHAIRMAN. The gentleman from Florida has 14 minutes remaining.
The gentlewoman from West Virginia has 15\1/2\ minutes remaining.

{time} 1545

Mr. KLEIN of Florida. Mr. Chairman, I yield 4 minutes to the
gentleman from Louisiana (Mr. Melancon).
Mr. MELANCON. Mr. Chairman, I want to thank my colleagues from
Florida for devising this great program which will be national,
voluntary, and fiscally sound for the people that are experiencing
problems with insurance throughout the country.
I am proud to speak today on H.R. 3355, the Homeowners' Defense Act.
Recovering from the two hurricanes that devastated our State and the
gulf coast in 2005 continues to be a challenge to the people of
Louisiana. One of the biggest roadblocks to our recovery remains the
lack of affordable and available property insurance.
However, as we have seen in the past few weeks with the wildfires
that have ravaged California, affordable insurance isn't just a problem
for the residents of the gulf coast. This is a nationwide problem that
needs our immediate attention and a practical and effective long-term
solution. I believe that this bill offers that long-term solution.
Mr. Chairman, in the wake of Hurricanes Katrina and Rita in 2005,
after the victims of these storms suffered two of the worst natural
disasters in this country's history, our people were forced through the
indignity of another battle, a battle with their insurance companies.
All along the coast, insurance companies have packed up and moved out.
They have canceled their policies, refused to write new ones, or raised
their rates exponentially, with less coverage and higher deductibles.
In Louisiana, more and more people are being forced to turn to
Louisiana's State-sponsored insurer of last resort and, again, paying
premiums way above the market rates. For those lucky enough to have
their policies renewed, they are now being hit with skyrocketing
premium increases, often as much as two, three, four, five times what
they paid before, and some even higher.
The district in Louisiana that I represent is entirely in the ``new''
hard-to-insure part of the State. Every day I get calls, e-mails, and
letters from constituents begging Congress to do something about the
insurance crisis. Here is just a sample:
Roy Barrios of Lafourche Parish wrote to me, saying that Allstate
recently canceled his homeowners insurance and he is now having to pay
three times as much coverage, which he is thankful to get, but still in
all, from Louisiana's insurer of last resort. He is only two months shy
of being covered by Louisiana's consumer protection laws that would
have kept his policy from being canceled, although he noted that
Allstate is happy to renew his more profitable car insurance policy.
Jeanette Tanguis of Houma, Louisiana, said a premium increase of $200
a month stretches her budget tremendously. In a letter to me she wrote:
``Having spent most of my life living in Terrebonne Parish, it never
occurred to me that I would ever be forced to move from the place I
love and have called home for most of my life. Unfortunately, my family
and I are being forced to make this sad decision,'' because of the
insurance situation.
Similarly, Nolan Falgout of Thibodaux wrote to me and said: ``In the
event we do not get a handle on this issue, this will become the next
reason why your constituents who enjoyed growing up in this section of
`Cajun' Louisiana will no longer be able to afford to live here.''
These are only a few of the many stories I hear from people forced to
leave their homes and their communities. If claimants from the two
hurricanes had been awarded the settlements that they were entitled to
from their insurance companies, this may not have

[[Page H13342]]

been an issue that requires the attention of Congress.
Sadly, this is not the case. It is time we recognize that market
failures exist. The victims of these hurricanes, the victims of the
wildfires and unforeseen natural disasters all deserve to know that the
insurance system will not abandon them when they need it the most.
Mr. Chairman, I believe that H.R. 3355 will provide for this
stability and the long-term solution we need to solve this insurance
crisis so that America's families will not have to abandon their
communities and can return to their homes. I again thank my friends, my
colleagues, the chairman of the committee and others that have put so
much time and effort into this good legislation.
Mrs. CAPITO. Mr. Chairman, I reserve the balance of my time.
Mr. KLEIN of Florida. Mr. Chairman, I yield 1 minute to the gentleman
from Ohio (Mr. Kucinich).
Mr. KUCINICH. Mr. Chairman, I am from Cleveland, Ohio; and it would
seem from this discussion that while this is all about Florida, it is
not. All over this country there are communities that are in coastal
areas and flood plains, in hurricane alleys; and they are all looking
at this legislation, realizing that the insurance companies are just
withdrawing from areas where there's a high number of claims. They
don't want to take the risk anymore, even though people, many of whom
have been paying premiums, have never filed a claim.
So it is appropriate for this legislation to be passed. I have to say
that the occasion of this legislation raises even deeper questions
about the insurance industry across this country as to their practices,
as to a new form of environmental redlining. And what we are looking at
is we also have to see the interplay between environmental and energy
policies and weather and climate patterns.
We are at a moment of transition here. Certainly this legislation
ought to be supported.
Mrs. CAPITO. Mr. Chairman, I would like to point out a couple of
things. I represent the State of West Virginia. In our home State for
many, many, many years we had a state-run workers comp program, which
caused businesses to leave, which caused workers comp rates to rise
because of the nature of a state-run insurance company. Maybe this is
what is going on in Florida to a certain degree with the catastrophic
insurance situation and the state-run insurance company.
The solution we went to in West Virginia is to move workers comp to
the private sector to incent private markets to come into our State.
Starting January 1, we are going to have competitive bidding on our
workers comp and workers comp rate. They are beginning to slide now,
and our great hope is that it will become more reasonable as time goes
on.
One concern I think that I ought to also raise and that has been
raised to me, the Wildlife Federation opposes this bill because of the
concerns the gentleman from Ohio alluded to in his statements in terms
of the environmental aspects of this bill. Are we encouraging
redevelopment in areas, particularly in our very fragile coastal areas,
that are in dangerous kinds of environmental situations but also maybe
were developed under less stringent rules and regulations?
What kind of protections do we have for our fragile coastal regions
in this bill? I think it's a logical question to ask and one that has
been brought forth to all of us in the Committee on Financial Services.
Mr. Chairman, I reserve the balance of my time.
Mr. KLEIN of Florida. Mr. Chairman, I yield 2 minutes to the
gentleman from Washington (Mr. Inslee).
(Mr. INSLEE asked and was given permission to revise and extend his
remarks.)
Mr. INSLEE. Mr. Chairman, before I comment on this bill, I want to
comment on two leaders who helped to get it here, Mr. Klein and Mr.
Mahoney. Usually, when freshmen Congressmen have bills in the House, it
is something like naming a post office or something. These two fellows
have worked a very well-crafted bill that I hope has broad consensus,
and they have my admiration for their great work.
I think it is a very important bill for all of us because it responds
to the need for a stable insurance market in these areas. Some have
suggested somehow this displaces the private insurance industry. In
fact, it just allows that market to work. It is preferable to have
catastrophe bonds and some reinsurance contracts in advance, rather
than trying to deal with catastrophe afterwards through Federal
Government bailouts. This is a market-driven way to do it. It makes the
market stronger. It spreads the risk in a way that is consistent with
our economic system, and we need to pass this bill.
Mrs. CAPITO. Mr. Chairman, as I have said in my opening statement and
some of my comments, I think that this bill presents an implicit
Federal backstop for catastrophe insurance to spread the risk. It has
potential to cost the taxpayers of this country enormous amounts of
money.
Let's just do a scenario where, say in Florida, hopefully this never
happens, there is a catastrophe of a hurricane of very large
proportions, and Florida goes through all the insurance that is
available to them and comes to the Federal Government and asks for a
loan. Let's say this catastrophe is of such proportions that Florida
looks to their lawmakers and looks to their taxpayers and realizes they
can't pay this loan back. What are we going to do here in the United
States Congress? We know what we are going to do: we are going to
forgive the loan.
I think therein lies one of the big problems in this bill, that it
does go to every taxpayer in this country, it does have a formal
liability to every taxpayer. Whether it says it explicitly in the bill,
it is going to result in that.
My suggestion and some of the suggestions coming from my side of the
aisle are going to be, let's step back. Let's do a study. Let's look at
this. Let's make sure we have mitigation and let's make sure we are
doing this responsibly.
I don't happen to live in Florida, and there are many times during
the year when I really wish I did. Although I love living in West
Virginia, many West Virginians do live in Florida, by the way, during
certain parts of the year, and I know how difficult some of the
catastrophes that Floridians suffer are, as well as across the
coastline and across the Nation.
This is not about shutting them out or making them not have the
ability to be able to insure their properties and live a good,
wonderful life in the State of Florida. This is about finding the best
solution, not only for Floridians but for the rest of the Nation.
Mr. Chairman, I yield back the balance of my time.
Mr. KLEIN of Florida. Mr. Chairman, with the indulgence of the
gentlewoman from West Virginia, I yield such time as he may consume to
my cosponsor, the gentleman from Florida (Mr. Mahoney).
Mr. MAHONEY of Florida. Mr. Chairman, I want to thank everybody for
having this open debate today and discussing something that is very
important to people across this country. This is all about the dream of
homeownership. This is about markets working. This is about stabilizing
the insurance market so that people who go to work every day can
fulfill their dream of homeownership.
What we have today is a situation that is understandable. We have a
situation where as a result of an increase in the severity and the
frequency of natural disasters, insurance companies are prudently
increasing premiums. What they are seeing is, as a result of this, an
unfunded liability in the billions that they have no other recourse but
to either leave markets or raise rates so high that working families
can't afford their homeowners insurance.
Today, we have the ability to help those people; and we have a very
special opportunity, because we can do something here in Washington, DC
that we can all be proud of when we go back home, and that is we can
fix a problem and do it responsibly. We can end the bailout. We can end
the cycle of writing checks and expecting nobody to pay them back,
which is exactly what has happened over the years with Katrina and
Wilma and other major storms across the Nation.
I hope that everybody takes a very close look at this. Many people
have described this as a payoff or a bailout for Florida. This is not.
This is responsible legislation. It not only expands

[[Page H13343]]

the market for private insurance; it makes sure that States have the
ability to get money to people after a disaster so they can get in
their homes and so they can keep their communities alive. Finally, it
is responsible because it encourages mitigation and it encourages
building codes. It supports the idea of responsible development.
In conclusion, I want to thank my dear friend Congressman Klein and
the journey over the last year to the week when we both got elected to
Congress and came here with the hope of trying to solve this problem
and being here today.
I want to thank my staff. I want to thank Patrick Givens for all the
work that he has done. I want to thank Garrett Donovan, who has done an
amazing job, and the complete staff of the Financial Services
Committee.
In closing, I want to thank Barney Frank and the leadership for
understanding that this is about people. This is not about companies.

National Association

of Insurance Commissioners,

Kansas City, MO, November 6, 2007.
Re H.R. 3355, the Homeowner's Defense Act.

Hon. Ron Klein,
Cannon House Building,
Washington, DC.
Hon. Timothy Mahoney,
Longworth House Building,
Washington, DC.
Dear Congressmen Klein and Mahoney: The NAIC congratulates
you for putting forth legislation intended to help States
better manage the threat of natural catastrophes. We
appreciate your willingness to consider our perspective
during the bill's development. States have developed a
variety of tools to fill insurance gaps in areas where the
private market is either unwilling to provide property
coverage, or where consumers are unable to afford it. Your
legislation provides another tool for States to consider,
without handing down a federal mandate to participate.
H.R. 3355 provides a strong correlation to guiding
principles the NAIC adopted when evaluating federal
catastrophe proposals. For example, the bill is voluntary; it
does not impede State functions; it encourages availability;
it recognizes the States' important role in insurance
regulation; it forms a State-federal partnership approach to
address availability; it follows actuarial principles; and it
allows States to pool risk and utilizes the capital markets.
The insurance and reinsurance markets have a significant
amount of capacity, and access to that capacity for events
that are small yet frequent is generally affordable. But for
those that live in areas where events can be infrequent yet
catastrophic, access to insurance capacity after a
significant event is either unavailable or unaffordable. This
is the dilemma that regulators and legislators must face
together.
H.R. 3355 provides a viable solution for the State and
federal government to work together to address this dilemma
and address the natural catastrophe threat. We encourage our
members to strongly consider this program for their needs.
We thank you for your leadership on this critical, national
issue, and we look forward to continuing to work with you to
enhance the bill through passage.
Sincerely,
Walter Bell,
Alabama Insurance Commissioner, NAIC President.
Catherine J . Weatherford,
NAIC Executive Vice President and CEO.

Mr. KLEIN of Florida. Mr. Chairman, I yield myself such time as I may
consume.
Mr. Chairman, I would also like to acknowledge Chairman Barney Frank,
who, without his guidance and leadership and thoughtfulness and process
of good ideas, we wouldn't be here today, as well as Tom Glassic,
Kathleen Mellody, Lawranne Stewart, Peter Roberson, Patrick Givens from
Congressman Mahoney's office, and Garrett Donovan from my office, and
all the staff and experts from around the country who have participated
in this very carefully thought out piece of innovative legislation.
We are very honored to be here today, because the bill that we have
before us is a comprehensive step in the right direction. As a Member
of Congress from south Florida, I have lived under the threat of
natural disasters for some time. It was only when I came to Washington,
however, that I began to discuss this issue with Members from other
parts of country who also shared stories about disasters that their
constituents faced, earthquakes, hurricanes, wildfires, tornadoes. It
was then that I began to realize that this is not a regional problem;
it is a national one.
I further reflected on the fact that the Federal response following a
major disaster is very predictable. We open up the Treasury and start
spending. This spending is entirely necessary, but often is delivered
with only few restraints and comes equally from taxpayers in every
corner of our country. So even if you are not in a high-risk region,
you are still impacted by the event.
Under this bill, participating States would be better protected,
again, States that only opt in on their own if they choose; and they
would be increasingly able to provide services for those who are not
able to find insurance on their own. The State-Federal partnership
would present States with the tools necessary to responsibly, fiscally
responsibly, manage their risk before disaster strikes, while also
ensuring that States can quickly and efficiently respond to homeowners'
insurance claims following a natural catastrophe.

{time} 1600

This legislation employs several new ideas to help States address the
property insurance crisis, such as the transfer of States' insurance
risk through the use of catastrophe bonds. By utilizing an innovative
capital market approach, the bill allows investors to assume some of
the risk, while at the same time putting the burden on local homeowners
to do all the necessary mitigation responsibility they have to reduce
risk to their own home, to the State, and to the Federal Government.
This is a fundamental rethinking of disaster planning and response,
and it is long overdue. Our bill works because it's voluntary,
actuarially sound, and stabilizes the market by ensuring that
homeowners will always get their claim paid while capping the State
liability.
In addition, our bill is fiscally responsible. The Homeowners'
Defense Act will end the policy of Federal bailouts following natural
disasters.
The steps taken in this bill provide us with a blueprint of how
States can responsibly plan for catastrophes ahead while also providing
them with a path to recovery.
As I have said time and time again, the status quo is no longer an
option. I urge Members of this body to vote ``yes'' on this bill.
Ms. CORRINE BROWN of Florida. Mr. Chairman, as a Member from Florida,
I rise in strong support of the Homeowners' Defense Act, H.R. 3355.
The terribly high cost for homeowners paying property insurance in my
State of Florida, as well as for those on the Gulf Coast, and as we saw
just recently, in California, has become a growing concern for
homeowners. We saw what happened after hurricane Katrina and Rita and
the four hurricanes that hit my district in Florida back in 2004.
These hurricanes, and other recent natural disasters, have led the
insurance companies to limit their exposure to such disasters by
outright pulling out, or reducing their risk. And this back peddling on
their obligations on the part of the insurance industry has resulted in
homeowner insurance rates rising by 100 percent to over 600 percent in
higher-risk areas. This is entirely unacceptable. How can homeowners
possibly afford this? This is just outrageous. We need to take action
and step in. Just last week we saw the insurance companies out in
California saying they will not provide insurance to hundreds of
thousands of people that lost their homes in the terrible wildfires
that hit the coast, all the way from LA to the Mexican border.
This is why people buy insurance: to protect themselves. How is it
then that after disaster after disaster can we just sit back and allow
these companies to pull out of the market.
Rising insurance rates are affecting homeowners across the country,
not just in Florida. Clearly, the insurance market is not working, and
it is time to put through a plan to stabilize the market and lower
insurance rates for consumers.
Mr. BACHUS. Mr. Chairman, many of us are sympathetic to the insurance
rate increases coastal catastrophe-prone areas have experienced
recently, but there is no consensus that H.R. 3355 would offer any
long-term help. Instead of granting long-term relief for middle-income
coastal homeowners confronted with rising insurance costs, this bill
would stick taxpayers wiith the tab of bailing out insolvent State
insurance companies. In the past few years since some of the largest
hurricanes on record tore through the gulf coast and coastal Florida,
affected States have tried to protect their local markets, to limit
rates increases, force coverage, or restrict market freedom.
Competition is reduced

[[Page H13344]]

and homeowners are left with fewer choices--State efforts to secure
more coverage for their constituents have ironically resulted in less
affordability.
The Florida members on the minority side of the Financial Services
Committee--Ginny Brown-Waite, Tom Feeney, and Adam Putnam--have been
very attentive to the needs of their constituents and have constantly
kept us updated on the problems there. We commend them for their
service.
Of the two primary titles, the first does nothing that States can't
already do under current law. The second is nothing more creative then
giving cheap federally-subsidized loans to State insurance companies
that are driving out the private market. The Congressional Budget
Office estimates that over the next 5 years, implementing this bill
would cost $75 million. But even this number grossly underestimates the
true cost for American taxpayers. CBO apparently finds little value in
Title II of this bill, finding that the federally subsidized loans
would be made ``very rarely,'' as CBO does not expect any states would
even bother applying for a loan following a disaster. In essence, they
agreed this provision is of little value. However, taxpayers could
potentially be on the hook for tens of billions of dollars, stuck with
an enormous cost of capital for the loan's duration, and subject to the
inevitable pressure to forgive the loans on the taxpayers' dime. This
is the old two step ``ask for'' by people borrowing from government--
ask for the money now and then ask for debt forgiveness later.

Because private insurers don't want to provide underpriced, risky
coastal insurance, Florida created Citizens Property Insurance
Corporation in 2002. While Citizens was supposed to be an insurer of
last resort, it is now Florida's largest insurer with over 1.3 million
policyholders and total exposure of more than $434 billion, yet only
enough funding to pay approximately $9.4 billion in claims. This
undercapitalization means that if a major hurricane hits Florida,
Citizens could be bankrupt by hundreds of billions of dollars. To bring
down the cost of insurance even more, Florida created a state
reinsurance fund to sell cheap reinsurance to private companies to
encourage them to write business in the state. This fund is chronically
undercapitalized and has driven out the global reinsurance market,
recouping losses through taxpayer assessments. According to a
Georgetown University report released last summer, the Florida cat fund
offers $32 billion in coverage despite having only $1 billion in hand
[or, according to the Florida Cat Fund staff, around $28 billion in
liabilities and $2.2 billion in non-debt cash assets].
Mr. Chairman, the federally-headed consortium, while novel, likely
offers nothing but an implicit federal backing for any issued
securities, much like a GSE. According to the President's Statement of
Administration Policy for this bill, ``there is no need for a federal
role because states are currently free to associate to address
catastrophe risk.'' It is also questionable whether such securitization
represents any significant advantages over the sophisticated private
reinsurance markets. According to the Georgetown Environmental Law &
Policy Institute, ``the mere creation of the consortium would likely
skew insurance premiums and encourage unwise development.'' Masking the
true cost of insurance puts homeowners in harm's way while subsidizing
state cat funds and developers.

Perhaps most troubling are the provisions of the bill that would
mandate cheap Treasury loans to state catastrophe programs. Today,
Florida is the only state with a reinsurance fund that would qualify
for these loans, but there is no doubt this bill would spur the
creation of other state programs based on the Florida ``model.'' One
property and casualty insurance trade association stated that that
these loans would ``impede private markets and would send the wrong
signals to states.'' H.R. 3355 even allows an interim period where
other state-run insurers--such as the bankrupt Citizens in Florida--
could receive these loans. We should question the wisdom of bankrolling
state insurance companies like Citizens. Congress should also consider
whether a Federal loan to an insolvent state catastrophe fund would be
like the Federal Government's ongoing ``loan'' to the National Flood
Insurance Program, which is currently carrying $18 billion in debt to
the U.S. Treasury that is unlikely to ever be repaid.
Republicans will offer a number of important amendments today to
steer this debate towards fiscal responsibility, taxpayer protection,
and free market competition. We will also consider an amendment by
Congressman Shays to replace the text of this bill with a bipartisan,
blue-ribbon commission to report to Congress specific proposals to
improve the affordability and availability of natural catastrophe
insurance. We need to look more closely at the various solutions
proposed by members on both sides of the aisle that could help
homeowners access more coverage through the private market.
Mr. Chairman, we have an obligation to be thoughtful and deliberate
when confronting this complex issue affecting millions of homeowners.
The problem has many root causes, namely overregulation, overbuilding,
and overreaching by state insurance entities. This bill, nor any one
proposal, is the silver bullet. Congress should craft meaningful
bipartisan reforms that address market dysfunction and the growing
threat excessive coastal development poses. The Nation's homeowners and
taxpayers deserve better than a scramble to rush a partisan bill
through Congress. If the amendments are not accepted, we should vote it
down but keep working.
Mr. HASTING of Florida. Mr. Chairman, I rise today in strong support
of the Homeowners' Defense Act of 2007. I can think of no other bill
which has the ability to help the people in my district rebuild
following a natural disaster.
I applaud the leadership of my good friends and congressional
neighbors, Representatives Ron Klein and Tim Mahoney. In championing
this vital legislation, they are providing the leadership that we all
knew they both would show when elected last November. Indeed, they are
leaders not only in Florida, but as evidenced today, in this great
institution and the entire country.
In the aftermath of the wildfires in California, tornadoes and floods
in the Midwest and Northeast, and the hurricanes in the Gulf Coast and
Florida, insurance companies are abandoning homeowners in need. In many
vulnerable states, including my own, insurance companies have stopped
offering coverage or increased rates exponentially where their services
are most needed. These companies have protected their own pocketbooks
at the expense of the American people for far too long.
The bill before us today establishes the necessary safety net which
is needed in the absence of a stable insurance market. The legislation
gives states a choice on whether or not they wish to participate in
this safety net. In investing a little today, states will effectively
stabilize their own insurance markets and ensure access to necessary
homeowners' insurance at affordable rates. Importantly, these funds
will then be used to rebuild our communities quickly and cost
efficiently.
I have said for years that our approach toward natural disasters is
too responseoriented. We wait and we wait for something bad to happen.
Then we react. Time and time again, Congress passes emergency
appropriations to rebuild but never makes the necessary investments to
plan for the future. This legislation changes the way we go about doing
business around here.
This legislation establishes a mechanism for states to acquire
necessary funds for recovery after a natural disaster in an orderly and
equitable manner. Frankly, it is high time that we proactively address
disaster mitigation by stabilizing the insurance market and
establishing a reliable funding mechanism for recovery.
In Florida, my constituents are being put out of their homes because
they cannot afford their insurance rates. With the instability of the
housing market leaving so many homeowners on the verge of foreclosure,
we cannot afford to allow skyrocketing insurance rates to push them
over the edge. In the event of a natural disaster, homeowners should
never be forced to risk everything because they can not afford the
necessary coverage.
My two colleagues from Florida have drafted balanced legislation
which incorporates the bipartisan contributions and expertise of many
stakeholders. By passing this legislation, the House can once again
demonstrate its solidarity and compassion for those Americans who find
themselves victims of natural disasters.
I have seen with my very own eyes what happens to people when a
hurricane barrels through their neighborhood. I have seen the damage,
and I have seen the emotional pain.
Americans should no longer be forced to place their livelihoods at
risk in the event that a natural disaster strikes their home, and
states should not be forced to participate in a program of which they
do not wish to be a part. To both of these ends, this legislation is a
success.
Rest assured, when this bill becomes law, Florida will participate.
Unfortunately, many states will not. Though I hope that every state
ultimately participates, under this bill, the choice is rightfully
theirs.
Not one of the 50 states nor any of the territories is immune to
natural disasters. Whether today, tomorrow, next year, or sometime in
the future, we will all be affected by a natural disaster fIrst-hand.
States which participate in this disaster insurance program will have a
much easier time recovering and they will do so by placing a smaller
burden on the American taxpayer. This is a common sense solution to an
unfortunately all too common problem.
Mr. KLEIN of Florida. Mr. Chairman, I yield back the balance of my
time.
The CHAIRMAN. All time for general debate has expired.

[[Page H13345]]

Pursuant to the rule, the amendment in the nature of a substitute
printed in the bill shall be considered as an original bill for the
purpose of amendment under the 5-minute rule and shall be considered
read.
The text of the amendment in the nature of a substitute is as
follows:

H.R. 3355

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) Short Title.--This Act may be cited as the
``Homeowners' Defense Act of 2007''.
(b) Table of Contents.--The table of contents for this Act
is as follows:
Sec. 1. Short title; table of contents.
Sec. 2. Findings and purposes.

TITLE I--NATIONAL CATASTROPHE RISK CONSORTIUM

Sec. 101. Establishment; status; principal office;
membership.
Sec. 102. Functions.
Sec. 103. Powers.
Sec. 104. Nonprofit entity; conflicts of interest; audits.
Sec. 105. Management.
Sec. 106. Staff; experts and consultants.
Sec. 107. Federal liability.
Sec. 108. Authorization of appropriations.

TITLE II--NATIONAL HOMEOWNERS' INSURANCE STABILIZATION PROGRAM

Sec. 201. Establishment.
Sec. 202. Liquidity loans and catastrophic loans for state
and regional reinsurance programs.
Sec. 203. Reports and audits.
Sec. 204. Funding.

TITLE III--GENERAL PROVISIONS

Sec. 301. Qualified reinsurance programs.
Sec. 302. Definitions.
Sec. 303. Regulations.

SEC. 2. FINDINGS AND PURPOSES.

(a) Findings.--The Congress finds that--
(1) the United States has a history of catastrophic natural
disasters, including hurricanes, tornadoes, flood, fire,
earthquakes, and volcanic eruptions;
(2) although catastrophic natural disasters occur
infrequently, they will continue to occur and are
predictable;
(3) such disasters generate large economic losses and a
major component of those losses comes from damage and
destruction to homes;
(4) for the majority of Americans, their investment in
their home represents their single biggest asset and the
protection of that investment is paramount to economic and
social stability;
(5) historically, when a natural disaster eclipses the
ability of the private industry and a State to manage the
loss, the Federal Government has stepped in to provide the
funding and services needed for recovery;
(6) the cost of such Federal ``bail-outs'' are borne by all
taxpayers equally, as there is no provision to repay the
money and resources provided, which thereby unfairly burdens
citizens who live in lower risk communities;
(7) as the risk of catastrophic losses grows, so do the
risks that any premiums collected by private insurers for
extending coverage will be insufficient to cover future
catastrophes (known as timing risk), and private insurers, in
an effort to protect their shareholders and policyholders (in
the case of mutually-owned companies), have thus
significantly raised premiums and curtailed insurance
coverage in States exposed to major catastrophes;
(8) such effects on the insurance industry have been
harmful to economic activity in States exposed to major
catastrophes and have placed significant burdens on existing
residents of such States;
(9) Hurricanes Katrina, Rita, and Wilma struck the United
States in 2005, causing over $200,000,000,000 in total
economic losses, and insured losses to homeowners in excess
of $50,000,000,000;
(10) since 2004, the Congress has appropriated more than
$58,000,000,000 in disaster relief to the States affected by
natural catastrophes;
(11) the Federal Government has provided and will continue
to provide resources to pay for losses from future
catastrophes;
(12) when Federal assistance is provided to the States,
accountability for Federal funds disbursed is paramount;
(13) the Government Accountability Office or other
appropriate agencies must have the means in place to confirm
that Federal funds for catastrophe relief have reached the
appropriate victims and have contributed to the recovery
effort as efficiently as possible so that taxpayer funds are
not wasted and citizens are enabled to rebuild and resume
productive activities as quickly as possible;
(14) States that are recipients of Federal funds must be
responsible to account for and provide an efficient means for
distribution of funds to homeowners to enable the rapid
rebuilding of local economies after a catastrophic event
without unduly burdening taxpayers who live in areas seldom
affected by natural disasters;
(15) State insurance and reinsurance programs can provide a
mechanism for States to exercise that responsibility if they
appropriately underwrite and price risk, and if they pay
claims quickly and within established contractual terms; and
(16) State insurers and reinsurers, if appropriately
backstopped themselves, can absorb catastrophic risk borne by
private insurers without bearing timing risk, and thus enable
all insurers (whether State-operated or privately owned) to
underwrite and price insurance without timing risk and in
such a way to encourage property owners to pay for the
appropriate insurance to protect themselves and to take steps
to mitigate against the risks of disaster by locally
appropriate methods.
(b) Purposes.--The purposes of this Act are to establish a
program to provide a Federal backstop for State-sponsored
insurance programs to help homeowners prepare for and recover
from the damages caused by natural catastrophes, to encourage
mitigation and prevention for such catastrophes, to promote
the use of private market capital as a means to insure
against such catastrophes, to expedite the payment of claims
and better assist in the financial recovery from such
catastrophes.

TITLE I--NATIONAL CATASTROPHE RISK CONSORTIUM

SEC. 101. ESTABLISHMENT; STATUS; PRINCIPAL OFFICE;
MEMBERSHIP.

(a) Establishment.--There is established an entity to be
known as the ``National Catastrophe Risk Consortium'' (in
this title referred to as the ``Consortium'').
(b) Status.--The Consortium is not a department, agency, or
instrumentality of the United States Government.
(c) Principal Office.--The principal office and place of
business of the Consortium shall be such location within the
United States determined by the Board of Directors to be the
most advantageous for carrying out the purpose and functions
of the Consortium.
(d) Membership.--Any State that has established a
reinsurance fund or has authorized the operation of a State
residual insurance market entity shall be eligible to
participate in the Consortium.

SEC. 102. FUNCTIONS.

The Consortium shall--
(1) work with all States, particularly those participating
in the Consortium, to gather and maintain an inventory of
catastrophe risk obligations held by State reinsurance funds
and State residual insurance market entities;
(2) at the discretion of the affected members and on a
conduit basis, issue securities and other financial
instruments linked to the catastrophe risks insured or
reinsured through members of the Consortium in the capital
markets;
(3) coordinate reinsurance contracts between participating,
qualified reinsurance funds and private parties;
(4) act as a centralized repository of State risk
information that can be accessed by private-market
participants seeking to participate in the transactions
described in paragraphs (2) and (3) of this section;
(5) use a catastrophe risk database to perform research and
analysis that encourages standardization of the risk-linked
securities market;
(6) perform any other functions, other than assuming risk
or incurring debt, that are deemed necessary to aid in the
transfer of catastrophe risk from participating States to
private parties; and
(7) submit annual reports to Congress describing the
activities of the Consortium for the preceding year.

SEC. 103. POWERS.

The Consortium--
(1) may make and perform such contracts and other
agreements with any individual or other private or public
entity however designated and wherever situated, as may be
necessary for carrying out the functions of the Consortium;
and
(2) shall have such other powers, other than the power to
assume risk or incur debt, as may be necessary and incident
to carrying out this Act.

SEC. 104. NONPROFIT ENTITY; CONFLICTS OF INTEREST; AUDITS.

(a) Nonprofit Entity.--The Consortium shall be a nonprofit
entity and no part of the net earnings of the Consortium
shall inure to the benefit of any member, founder,
contributor, or individual.
(b) Conflicts of Interest.--No director, officer, or
employee of the Consortium shall in any manner, directly or
indirectly, participate in the deliberation upon or the
determination of any question affecting his or her personal
interests or the interests of any Consortium, partnership, or
organization in which he or she is directly or indirectly
interested.
(c) Audits.--
(1) Annual audit.--The financial statements of the
Consortium shall be audited annually in accordance with
generally accepted auditing standards by independent
certified public accountants.
(2) Reports.--The report of each annual audit pursuant to
paragraph (1) shall be included in the annual report
submitted in accordance with section 102(7).

SEC. 105. MANAGEMENT.

(a) Board of Directors; Membership; Designation of
Chairperson.--
(1) Board of directors.--The management of the Consortium
shall be vested in a board of directors (referred to in this
title as the ``Board'') composed of not less than 3 members.
(2) Chairperson.--The Secretary of Treasury, or the
designee of the Secretary, shall serve as the chairperson of
the Board.
(3) Membership.--The members of the Board shall include--
(A) the Secretary of Homeland Security and the Secretary of
Commerce, or the designees of such Secretaries, respectively,
but only during such times as there are fewer than two States
participating in the Consortium; and
(B) a member from each State participating in the
Consortium, who shall be appointed by such State.
(b) Bylaws.--The Board may prescribe, amend, and repeal
such bylaws as may be necessary for carrying out the
functions of the Consortium.
(c) Compensation, Actual, Necessary, and Transportation
Expenses.--
(1) Non-federal employees.--A member of the Board who is
not otherwise employed by the

[[Page H13346]]

Federal Government shall be entitled to receive the daily
equivalent of the annual rate of basic pay payable for level
IV of the Executive Schedule under section 5315 of title 5,
United States Code, as in effect from time to time, for each
day (including travel time) during which such member is
engaged in the actual performance of duties of the
Consortium.
(2) Federal employees.--A member of the Board who is an
officer or employee of the Federal Government shall serve
without additional pay (or benefits in the nature of
compensation) for service as a member of the Consortium.
(3) Travel expenses.--Members of the Consortium shall be
entitled to receive travel expenses, including per diem in
lieu of subsistence, equivalent to those set forth in
subchapter I of chapter 57 of title 5, United States Code.
(d) Quorum.--A majority of the Board shall constitute a
quorum.
(e) Executive Director.--The Board shall appoint an
executive director of the Consortium on such terms as the
Board may determine.

SEC. 106. STAFF; EXPERTS AND CONSULTANTS.

(a) Staff.--
(1) Appointment.--The Board of the Consortium may appoint
and terminate such other staff as are necessary to enable the
Consortium to perform its duties.
(2) Compensation.--The Board of the Consortium may fix the
compensation of the executive director and other staff.
(b) Experts and Consultants.--The Board shall procure the
services of experts and consultants as the Board considers
appropriate.

SEC. 107. FEDERAL LIABILITY.

The Federal Government and the Consortium shall not bear
any liabilities arising from the actions of the Consortium.
Participating States shall retain all catastrophe risk until
the completion of a transaction described in paragraphs (2)
and (3) of section 102.

SEC. 108. AUTHORIZATION OF APPROPRIATIONS.

There are authorized to be appropriated to carry out this
title $20,000,000 for each of fiscal years 2008 through 2013.

TITLE II--NATIONAL HOMEOWNERS' INSURANCE STABILIZATION PROGRAM

SEC. 201. ESTABLISHMENT.

The Secretary of the Treasury shall carry out a program
under this title to make liquidity loans and catastrophic
loans under section 202 to qualified reinsurance programs to
ensure the solvency of such programs, to improve the
availability and affordability of homeowners' insurance, to
incent risk transfer to the private capital and reinsurance
markets, and to spread the risk of catastrophic financial
loss resulting from natural disasters and catastrophic
events.

SEC. 202. LIQUIDITY LOANS AND CATASTROPHIC LOANS FOR STATE
AND REGIONAL REINSURANCE PROGRAMS.

(a) Contracts.--The Secretary may enter into a contract
with a qualified reinsurance program to carry out the
purposes of this Act as the Secretary may deem appropriate.
The contract shall include, at a minimum, the conditions for
loan eligibility set forth in this section.
(b) Conditions for Loan Eligibility.--A loan under this
section may be made only to a qualified reinsurance program
and only if--
(1) before the loan is made--
(A) the State or regional reinsurance program submits to
the Secretary a report setting forth, in such form and
including such information as the Secretary shall require,
how the program plans to repay the loan; and
(B) based upon the report of the program, the Secretary
determines that the program can meet its repayment obligation
under the loan and certifies that the program can meet such
obligation;
(2) the program cannot access capital in the private
market, including through catastrophe bonds and other
securities sold through the facility created in title I of
this Act, as determined by the Secretary, and a loan may be
made to such a qualified reinsurance program only to the
extent that such program cannot access capital in the private
market;
(3) the Secretary determines that an event has resulted in
insured losses in a State with a qualified reinsurance
program;
(4) the loan complies with the requirements under
subsection (d) and or (e), as applicable; and
(5) the loan is afforded the full faith and credit of the
State and the State demonstrates to the Secretary that it has
the ability to repay the loans.
(c) Mandatory Assistance for Qualified Reinsurance
Programs.--The Secretary shall upon the request of a
qualified reinsurance program and subject to subsection (b),
make a loan under subsection (d) or (e) for such program in
the amount requested by such program (subject to the
limitations under subsections (d)(2) and (e)(2),
respectively).
(d) Liquidity Loans.--A loan under this subsection for a
qualified reinsurance program shall be subject to the
following requirements:
(1) Preconditions.--The Secretary shall have determined
that the qualified reinsurance program--
(A) has a capital liquidity shortage, in accordance with
regulations that the Secretary shall establish; and
(B) cannot access capital markets at effective rates of
interest lower than those provided in paragraph (3).
(2) Amount.--The principal amount of the loan may not
exceed the ceiling coverage level for the qualified
reinsurance program.
(3) Rate of interest.--The loan shall bear interest at an
annual rate 3 percentage points higher than marketable
obligations of the Treasury having the same term to maturity
as the loan and issued during the most recently completed
month, as determined by the Secretary, or such higher rate as
may be necessary to ensure that the amounts of interest paid
under such loans exceed the sum of the costs (as such term is
defined in section 502 of the Federal Credit Reform Act of
1990 (2 U.S.C. 661a)) of such loans, the administrative costs
involved in carrying out a program under this title for such
loans, and any incidental effects on governmental receipts
and outlays.
(4) Term.--The loan shall have a term to maturity of not
less than 5 years and not more than 10 years.
(e) Catastrophic Loans.--A loan under this subsection for a
qualified reinsurance program shall be subject to the
following requirements:
(1) Preconditions.--The Secretary shall have determined
that an event has resulted in insured losses in a State with
a qualified reinsurance program and that such insured losses
in such State are in excess of 150 percent of the aggregate
amount of direct written premium for privately issued
property and casualty insurance, for risks located in that
State, over the calendar year preceding such event, in
accordance with regulations that the Secretary shall
establish.
(2) Amount.--The principal amount of the loan made pursuant
to an event referred to in paragraph (1) may not exceed the
amount by which the insured losses sustained as a result of
such event exceed the ceiling coverage level for the
qualified reinsurance program.
(3) Rate of interest.--The loan shall bear interest at an
annual rate 0.20 percentage points higher than marketable
obligations of the Treasury having a term to maturity of not
less than 10 years and issued during the most recently
completed month, as determined by the Secretary, or such
higher rate as may be necessary to ensure that the amounts of
interest paid under such loans exceed the sum of the costs
(as such term is defined in section 502 of the Federal Credit
Reform Act of 1990 (2 U.S.C. 661a)) of such loans, the
administrative costs involved in carrying out a program under
this title for such loans, and any incidental effects on
governmental receipts and outlays.
(4) Term.--The loan shall have a term to maturity of not
less than 10 years.
(f) Use of Funds.--Amounts from a loan under this section
shall only be used to provide reinsurance or retrocessional
coverage to underlying primary insurers or reinsurers for
losses arising from all personal real property or homeowners'
lines of insurance, as defined in the Uniform Property &
Casualty Product Coding Matrix published and maintained by
the National Association of Insurance Commissioners. Such
amounts shall not be used for any other purpose.

SEC. 203. REPORTS AND AUDITS.

The Secretary shall submit a report to the President and
the Congress annually that identifies and describes any loans
made under this title during such year and any repayments
during such year of loans made under this title, and
describes actions taken to ensure accountability of loan
funds. The Secretary shall provide for regular audits to be
conducted for each loan made under this title and shall make
the results of such audits publicly available.

SEC. 204. FUNDING.

(a) Program Fee.--
(1) In general.--The Secretary may establish and collect,
from qualified reinsurance programs that are precertified
pursuant to section 301(c), a reasonable fee, as may be
necessary to offset the expenses of the Secretary in
connection with carrying out the responsibilities of the
Secretary under this title, including--
(A) costs of developing, implementing, and carrying out the
program under this title; and
(B) costs of providing for precertification pursuant to
section 301(c) of State and regional reinsurance programs as
qualified reinsurance programs.
(2) Adjustment.--The Secretary may, from time to time,
adjust the fee under paragraph (1) as appropriate based on
expenses of the Secretary referred to in such paragraph.
(3) Use.--Any fees collected pursuant to this subsection
shall be credited as offsetting collections of the Department
of the Treasury and shall be available to the Secretary only
for expenses referred to in paragraph (1).
(b) Costs of Loans; Administrative Costs.--To the extent
that amounts of negative credit subsidy are received by the
Secretary in any fiscal year pursuant to loans made under
this title, such amounts shall be available for costs (as
such term is defined in section 502 of the Federal Credit
Reform Act of 1990 (2 U.S.C. 661a)) of such loans and for
costs of carrying out the program under this title for such
loans.
(c) Full Taxpayer Repayment.--The Secretary shall require
the full repayment of all loans made under this title. If the
Secretary determines at any time that such full repayment
will not made, or is likely not to be made, the Secretary
shall promptly submit a report to the Congress explaining why
such full repayment will not be made or is likely not to be
made.

TITLE III--GENERAL PROVISIONS

SEC. 301. QUALIFIED REINSURANCE PROGRAMS.

(a) In General.--For purposes of this Act only, a program
shall be considered to be a qualified reinsurance program if
the program--
(1) is authorized by State law for the purposes described
in this section;
(2) is an entity in which the authorizing State maintains a
material, financial interest;
(3) provides reinsurance or retrocessional coverage to
underlying primary insurers or reinsurers for losses arising
from all personal residential lines of insurance, as defined
in the Uniform Property & Casualty Product Coding Matrix
published and maintained by the National Association of
Insurance Commissioners;
(4) has a governing body, a majority of whose members are
public officials;
(5) provides reinsurance or retrocessional coverage to
underlying primary insurers or reinsurers for losses in
excess of such amount that the Secretary has determined
represents a catastrophic event in that particular State;

[[Page H13347]]

(6) is authorized by a State that has in effect such laws,
regulations, or other requirements, as the Secretary shall by
regulation provide, that--
(A) ensure, to the extent that reinsurance coverage made
available under the qualified reinsurance program results in
any cost savings in providing insurance coverage for risks in
such State, such cost savings are reflected in premium rates
charged to consumers for such coverage;
(B) require that any new construction, substantial
rehabilitation, and renovation insured or reinsured by the
program complies with applicable State or local government
building, fire, and safety codes;
(C) require State authorized insurance entities within that
State to establish an insurance rate structure that takes
into account measures to mitigate insurance losses;
(D) require State authorized insurance and reinsurance
entities within that State to establish rates at a level that
annually produces expected premiums that shall be sufficient
to pay the expected annualized cost of all claims, loss
adjustment expenses, and all administrative costs of
reinsurance coverage offered; and
(E) encourage State authorized insurance and reinsurance
entities within that State to establish rates that do not
involve cross-subsidization between any separate property and
casualty lines covered under the State authorized insurance
or reinsurance entity; and
(7) complies with such additional organizational,
underwriting, and financial requirements as the Secretary
shall, by regulation, provide to carry out the purposes of
this Act.
(b) Transitional Mechanisms.--For the five-year period
beginning on the date of the enactment of this Act, in the
case of a State that does not have a qualified reinsurance
program for the State, a State residual insurance market
entity for such State shall be considered to be a qualified
reinsurance program, but only if such State residual
insurance market entity was in existence before such date of
enactment.
(c) Precertification.--The Secretary shall establish
procedures and standards for State and regional reinsurance
programs and the State residual insurance market entities
described in section (b) to apply to the Secretary at any
time for certification (and recertification) as qualified
reinsurance programs.
(d) Reinsurance To Cover Exposure.--This section may not be
construed to limit or prevent any insurer from obtaining
reinsurance coverage for insured losses retained by insurers
pursuant to this section, nor shall the obtaining of such
coverage affect the calculation of the amount of any loan
under this title.

SEC. 302. DEFINITIONS.

For purposes of this Act, the following definitions shall
apply:
(1) Ceiling coverage level.--The term ``ceiling coverage
level'' means, with respect to a qualified reinsurance
program, the maximum liability, under law, that could be
incurred at any time by the qualified reinsurance program.
(2) Insured loss.--The term ``insured loss'' means any loss
insured by a qualified reinsurance program.
(3) Qualified reinsurance program.--The term ``qualified
reinsurance program'' means a State or regional program that
meets the requirements under section 301.
(4) Secretary.--The term ``Secretary'' means the Secretary
of the Treasury.
(5) State.--The term ``State'' includes the several States,
the District of Columbia, the Commonwealth of Puerto Rico,
Guam, the Commonwealth of the Northern Mariana Islands, the
United States Virgin Islands, and American Samoa.

SEC. 303. REGULATIONS.

The Secretary shall issue such regulations as may be
necessary to carry out this Act.

The CHAIRMAN. No amendment to that amendment shall be in order except
those printed in the portion of the Congressional Record designated for
that purpose and pro forma amendments for the purpose of debate.
Amendments printed in the Record may be offered only by the Member who
caused it to be printed or a designee and shall be considered read.

Amendment No. 17 Offered by Mr. Klein of Florida

Mr. KLEIN of Florida. Mr. Chairman, I offer an amendment.
The CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 17 offered by Mr. Klein of Florida:
Page 2, after line 7, in the item in the table of contents
relating to section 202, strike ``State and Regional'' and
insert ``Qualified''.
Page 4, line 6, strike ``(known as timing risk)''.
Page 4, line 15, strike ``existing''.
Page 6, strike lines 3 through 12, and insert the following
new paragraph:
(16) State catastrophe reinsurance programs, if
appropriately structured and regulated, assume catastrophic
risk borne by private insurers without incurring many of the
additional costs imposed on private insurers, and thus enable
all insurers within the State to underwrite and price
coverage at rates designed to encourage property owners to
acquire levels of insurance appropriate to their individual
risks.
Page 6, line 14, strike ``a Federal backstop'' and insert
``Federal support''.
Page 7, line 18, after ``entity'' insert ``, or State-
sponsored provider of natural catastrophe insurance,''.
Page 8, line 1, strike ``and'' and insert a comma.
Page 8, line 2, before the semicolon insert ``, and State-
sponsored providers of natural catastrophe insurance''.
Page 13, line 19, strike ``state and regional'' and insert
``qualified''.
Page 14, line 5, strike ``State or regional'' and insert
``qualified''.
Page 14, line 16, before the comma insert ``at a
commercially reasonable rate''.
Page 14, line 21, before the semicolon insert ``at a
commercially reasonable rate''.
Page 15, line 2, strike ``and'' the first place such term
appears.
Page 15, lines 3 and 4, strike ``the loan is afforded the
full faith and credit of the State and''.
Page 15, strike lines 21 through 23 and insert the
following new subparagraph:
(B) cannot access capital in the private markets at a
commercially reasonable rate.
Page 17, line 4, strike ``privately issued''.
Page 18, lines 9 and 10, strike ``real property or
homeowners' '' and insert ``residential''.
Page 19, strike ``section 301(c)'' each place such term
appears in lines 3 and 11 and insert ``section 401(d)''.
Page 20, line 9, after ``not'' insert ``be''.
Page 20, after line 12, insert the following new title:

TITLE III--REINSURANCE COVERAGE FOR QUALIFIED REINSURANCE PROGRAMS

SEC. 301. PROGRAM AUTHORITY.

Subject to section 304(c), the Secretary of the Treasury,
shall make available for purchase, only by qualified
reinsurance programs (as such term is defined in section
401), contracts for reinsurance coverage under this title.

SEC. 302. CONTRACT PRINCIPLES.

Contracts for reinsurance coverage made available under
this title--
(1) shall not displace or compete with the private
insurance or reinsurance markets or the capital market;
(2) shall minimize the administrative costs of the Federal
Government; and
(3) shall provide coverage based solely on insured losses
covered by the qualified reinsurance program purchasing the
contract.

SEC. 303. TERMS OF REINSURANCE CONTRACTS.

(a) Minimum Attachment Point.--Notwithstanding any other
provision of this title, a contract for reinsurance coverage
under this title for a qualified reinsurance program may not
be made available or sold unless the contract requires that
the qualified reinsurance program sustain an amount of
retained losses from events in an amount, as determined by
the Secretary, that is equal to the amount of losses
projected to be incurred from a single event of such
magnitude that it has a 0.5 percent chance of being equaled
or exceeded in any year.
(b) 90 Percent Coverage of Insured Losses in Excess of
Retained Losses.--Each contract for reinsurance coverage
under this title shall provide that the amount paid out under
the contract shall, subject to section 304, be equal to 90
percent of the amount of insured losses of the qualified
reinsurance program in excess of the amount of retained
losses that the contract requires, pursuant to subsection
(a), to be incurred by such program.
(c) Maturity.--The term of each contract for reinsurance
coverage under this title shall not exceed 1 year or such
other term as the Secretary may determine.
(d) Payment Condition.--Each contract for reinsurance
coverage under this title shall authorize claims payments to
the qualified reinsurance program purchasing the coverage
only for insured losses provided under the contract.
(e) Multiple Events.--The contract shall cover any insured
losses from one or more events that may occur during the term
of the contract and shall provide that if multiple events
occur, the retained losses requirement under subsection (a)
shall apply on a calendar year basis, in the aggregate and
not separately to each individual event.
(f) Timing of Claims.--Claims under a contract for
reinsurance coverage under this title shall include only
insurance claims that are reported to the qualified
reinsurance program within the 3-year period beginning upon
the event or events for which payment under the contract is
provided.
(g) Actuarial Pricing.--The price of coverage under a
reinsurance contract under this title shall be an amount,
established by the Secretary at a level that annually
produces expected premiums that shall be sufficient to pay
the reasonably anticipated cost of all claims, loss
adjustment expenses, all administrative costs of reinsurance
coverage offered under this title, and any such outwards
reinsurance, as described in section 305(c)(3), as the
Secretary considers prudent taking into consideration the
demand for reinsurance coverage under this title and the
limits specified in section 304.
(h) Information.--Each contract for reinsurance coverage
under this title shall contain a condition providing that the
Secretary may require the qualified reinsurance program that
is covered under the contract to submit to the Secretary all
information on the qualified reinsurance program relevant to
the duties of the Secretary under this title.
(i) Others.--Contracts for reinsurance coverage under this
title shall contain such other terms as the Secretary
considers necessary to carry out this title and to ensure the
long-term financial integrity of the program under this
title.

[[Page H13348]]

SEC. 304. MAXIMUM FEDERAL LIABILITY.

(a) In General.--Subject to subsection (b) and
notwithstanding any other provision of law, the aggregate
potential liability for payment of claims under all contracts
for reinsurance coverage under this title sold in any single
year by the Secretary shall not exceed $200,000,000,000 or
such lesser amount as is determined by the Secretary based on
review of the market for reinsurance coverage under this
title
(b) Limitation.--The authority of the Secretary to enter
into contracts for reinsurance coverage under this title
shall be effective for any fiscal year only to such extent or
in such amounts as are or have been provided in appropriation
Acts for such fiscal year for the aggregate potential
liability for payment of claims under all contracts for
reinsurance coverage under this title.

SEC. 305. FEDERAL NATURAL CATASTROPHE REINSURANCE FUND.

(a) Establishment.--There is established within the
Treasury of the United States a fund to be known as the
Federal Natural Catastrophe Reinsurance 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 title;
(2) any amounts appropriated under section 304; and
(3) any amounts earned on investments of the Fund pursuant
to subsection (d).
(c) Uses.--Amounts in the Fund shall be available to the
Secretary only for the following purposes:
(1) Contract payments.--For payments to purchasers covered
under contracts for reinsurance coverage for eligible losses
under such contracts.
(2) Administrative expenses.--To pay for the administrative
expenses incurred by the Secretary in carrying out the
reinsurance program under this title.
(3) Outwards reinsurance.--To obtain retrocessional or
other reinsurance coverage of any kind to cover risk
reinsured under contracts for reinsurance coverage made
available under this title.
(d) 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.

SEC. 306. REGULATIONS.

The Secretary shall issue any regulations necessary to
carry out the program for reinsurance coverage under this
title.
Page 20, line 13, strike ``TITLE III'' and insert ``TITLE
IV''.
Page 20, line 15, strike ``SEC. 301.'' and insert ``SEC.
401.''.
Page 22, line 4, after the semicolon insert ``and''.
Page 22, line 17, strike ``and''.
Page 22, strike lines 9 through 11 and insert the
following: ``the reasonably anticipated cost of all claims,
loss adjustment expenses, and all administrative costs of the
insurance or reinsurance coverage offered by such entities,
and any such outwards reinsurance as the program
administrator deems prudent;''.
Page 22, strike lines 12 through 17 and insert the
following new paragraphs:
(7) to the extent possible, seeks to avoid cross-
subsidization between any separate property and casualty
lines covered under the State authorized insurance or
reinsurance entity;
(8) complies with the risk-based capital requirements under
subsection (b); and
Page 22, line 18, strike ``(7)'' and insert ``(9)''.
Page 22, after line 21, insert the following new
subsection:
(b) Risk-Based Capital Requirements.--
(1) In general.--Except for programs deemed to be qualified
reinsurance programs pursuant to section 401(c), each
qualified reinsurance program shall maintain risk-based
capital in accordance with requirements established by the
Secretary, in consultation with the National Association of
Insurance Commissioners and consistent with the Risk-Based
Capital Model Act of the National Association of Insurance
Commissioners, and take into consideration asset risk, credit
risk, underwriting risk, and such other relevant risk as
determined by the Secretary.
(2) Treatment of access to liquidity loans.--
(A) In general.--To the extent that a qualified reinsurance
program is deficient in complying with any aspect of the
risk-based capital requirements established pursuant to this
subsection, the Secretary shall recognize and give credit for
the ability of such qualified reinsurance program to access
capital through the liquidity loan program established under
section 202(d).
(B) Annual diminution.--The extent of credit recognized and
given for a qualified reinsurance program pursuant to
subparagraph (A) shall diminish annually in a proportion
equal to the earned premium for the program for the prior
calendar year.
(C) Reset upon occurrence of catastrophe.--To the extent
that a qualified reinsurance program is obligated to pay
losses as a result of the occurrence of a catastrophe, the
Secretary shall increase the credit recognized and given for
the program pursuant to subparagraph (A) by an amount equal
to the losses paid by the program as a result of the
catastrophe.
(D) Resumption after catastrophe.--After a reset occurs
pursuant to subparagraph (C) for a qualified reinsurance
program, the diminution described in subparagraph (B) shall
resume and continue until the program has accumulated capital
sufficient to satisfy the risk-based capital requirement
determined by the Secretary to be appropriate given the
ceiling coverage level of that particular qualified
reinsurance program.
(3) Report.--For each calendar year, each qualified
reinsurance program shall prepare and submit to the Secretary
a report identifying its risk based capital, at such time
after the conclusion of such year, and containing such
information and in such form, as the Secretary shall require.
Page 22, line 22, strike ``(b)'' and insert ``(c)''.
Page 23, line 1, after ``entity'' insert ``, or State-
sponsored provider of natural catastrophe insurance,''.
Page 23, line 3, after ``entity'' insert ``, or State-
sponsored provider of natural catastrophe insurance,''.
Page 23, line 5, strike ``(c)'' and insert ``(d)''.
Page 23, line 11, strike ``(d)'' and insert ``(e)''.
Page 23, after line 16, insert the following new section:

SEC. 402. STUDY AND CONDITIONAL COVERAGE OF COMMERCIAL
RESIDENTIAL LINES OF INSURANCE.

(a) Study.--The Secretary shall study, on an expedited
basis, the need for and impact of expanding the programs
established by this Act to apply to insured losses of
qualified reinsurance programs for losses arising from all
commercial insurance policies which provide coverage for
properties that are composed predominantly of residential
rental units. The Secretary shall consider the catastrophic
insurance and reinsurance market for commercial residential
properties, and specifically the availability of adequate
private insurance coverage when an insured event occurs, the
impact any such capacity restrictions has on housing
affordability for renters, and the likelihood that such an
expansion of the program would increase insurance capacity
for this market segment.
(b) Conditional Coverage.--To the extent that the Secretary
determines that there is such a need to expand such programs
and such expansion will be effective in increasing insurance
capacity for the commercial residential insurance market, the
Secretary shall, in consultation with the National
Association of Insurance Commissioners--
(1) apply the provisions of this Act, as appropriate, to
insured losses of a qualified reinsurance program for losses
arising from commercial insurance policies which provide
coverage for properties that are composed predominantly of
residential rental units, as described in paragraph (a); and
(2) provide such restrictions, limitations, or conditions
with respect to the programs under this Act that the
Secretary deems appropriate, based on the study under
subsection (a).
Page 23, line 17, strike ``sec. 302.'' and insert ``sec.
403.''.
Page 23, lines 22 and 23, strike ``, under law,''.
Page 24, line 7, strike ``section 301'' and insert
``section 401''.
Page 24, line 15, strike ``SEC. 303.'' and insert ``SEC.
404.''.

The CHAIRMAN. The gentleman is recognized for 5 minutes.
Mr. KLEIN of Florida. Mr. Chairman, the amendment before us is
testament to the fact that this legislation is truly a work of
bipartisanship. Democrats and Republicans came together as this
legislation began to work its way through the process. A number of
interested Members reached out to us with well-thought suggestions on
how to improve the underlying bill. I am pleased to say we were able to
incorporate many suggestions into this amendment, including the
adoption of a provision that the gentlewoman from Florida (Ms. Ginny
Brown-Waite) has been developing over the last couple of years.
This amendment would establish a high-level natural catastrophe
reinsurance fund which would be authorized to write reinsurance
contracts to cover catastrophic natural disasters. The addition of such
a fund would add a third layer of protection to the legislation, which
could further help to increase availability and stabilize rates for
homeowners. The fund would provide reinsurance contracts for coverage
that is available after the qualified reinsurance program has sustained
losses resulting from a 1-in-200-year event.
Coverage would be provided on an actuarially sound basis and would
not displace or compete with the private market. This provision will go
a long way with providing high-level protection for States coping with
natural disasters.
The amendment also provides for a study and conditional authorization
for the inclusion of commercial residential lines of coverage. It is
important for us to make sure that renters are not left behind
following a disaster, and this

[[Page H13349]]

provision takes us in the right step of determining how capacity
restrictions impact housing affordability for renters. I know this was
a concern brought up, and I am glad to include it in this amendment.
I am also pleased that we were able to include a provision suggested
by the gentleman from Florida (Mr. Putnam) which ensures that qualified
reinsurance programs will engage in responsible reserving. This
provision would use an NAIC-developed formula to ensure that
participating States will be operating in a sound fashion.
We also wanted to make sure that States would not become overly
reliant on programs established under the legislation, and this
addition will add a safeguard against that concern.
Again, I would like to thank those Members who have come forward with
suggestions on how to improve the bill. I urge a ``yes'' vote on the
amendment.
I yield back the balance of my time.
Mr. ROSKAM. Mr. Chairman, I rise in opposition to the amendment and
to engage in a colloquy.
The Acting CHAIRMAN (Mr. Cardoza). The gentleman from Illinois is
recognized for 5 minutes.
Mr. ROSKAM. Mr. Chairman, I had previously presented or put at the
desk 11 amendments to the manager's amendment that I am not going to be
offering this afternoon. Instead, and in the interest of time, since I
wasn't seeking roll calls on them, anyway, I just raise a series of
questions that I am putting forward in good faith. They have been
brought to my attention by our staff. Some you may have answers for;
some you may have contemplated. Others you may say, let's think through
that a little further, because my sense is, while the House is about to
act, this is still very much a work in progress on Capitol Hill when it
goes to the other Chamber.
The first question I had is the term ``capital liquidity shortage.''
It is a term that is used exclusively in the text of the bill itself,
but it is not defined anywhere else. It is not a legal term of art that
I am aware of. We have done some Google searches on the Internet, and
it is a phrase that is unique to this bill. It is not defined.
My concern is that it could create, really, the maximum liability
that could be incurred at any time. I am wondering if the gentleman
from Florida is open to further defining ``capital liquidity
shortage''?
And I will be happy to yield.
Mr. KLEIN of Florida. I thank the gentleman from Illinois, and I do
appreciate the fact in our committee, the Committee on Financial
Services, you had a number of interesting inquiries, some of which were
incorporated and some are still a work in progress.
I will be more than happy to sit down, as this bill goes through the
process. Obviously the Senate is going to begin to consider this bill.
There will be opportunity through the conference, and I think there
should be an opportunity to take a closer look at this issue.
Mr. ROSKAM. I yield to the chairman.
Mr. FRANK of Massachusetts. I appreciate it and I appreciate the
gentleman's cooperation.
I would just say, to move this along, as the gentleman from Florida
responds, he will be speaking for the committee leadership. These are
matters on which we have some general agreement that work needs to be
done. I won't have to say this every time, but when the gentleman from
Florida gives you that assurance, it comes from the committee
leadership as well.
Mr. ROSKAM. I thank the gentleman.
Another term is the term ``commercially reasonable rate.'' It is also
not defined anywhere, and I would just submit that is another area that
we ought to be looking at.
The other notion is that State programs should be required to charge
actuarially sound rates and build up reserves based on a 1-in-200 year
standard used elsewhere in the manager's amendment. My concern is we
run into a situation like we have with the flood insurance program. We
should learn from that mistake.
The weakness of the flood insurance program was that it contemplated
simply anticipating the actual output, as it were, the actual claims,
rather than thinking from an actuarial point of view where you
contemplate the unanticipated. The way we have to do this, the way this
process has to be set up, is it has to literally anticipate the
unanticipated. And the way the manager's amendment is currently
crafted, it doesn't do that. In other words, it doesn't allow the
building up of reserves over a period of time so that the fund itself
is actuarially sound and that it can sustain an unexpected loss, the
massive storm, the unbelievable event that is literally not
contemplated.
There are two things that are inconsistent within the bill, it seems
to me. There is this lower view of contemplation of what you can build
up. But it also says you have to pass on the savings to the consumer.
So, literally, the fund is not able to build up the reserves that are
necessary in anticipation of what can't be anticipated.
With that, I yield to the gentleman.
Mr. KLEIN of Florida. I thank the gentleman from Illinois. And just
to respond to a couple of points there, the building up of reserves and
the passing of savings to consumers are not necessarily inconsistent
points. One of the goals of this bill is not to make more money for
insurance companies, many of them are doing just fine, it is to try to
create stability in the market at an actuarially sound rate. I take
your points, and they are well taken in terms of making sure we learn
from mistakes. I commit to the fact that we will continue to work
through this and make sure that it is based on sound actuarial
principles by which definition usually sound actuarial estimations do
take into account future anticipated events. I commit to that point.
Mr. ROSKAM. Reclaiming my time, I thank you. I just submit that the
language, as I understand it in the manager's amendment, doesn't
achieve the goal that you and I are seeking.
The Acting CHAIRMAN. The time of the gentleman from Illinois has
expired.
(On request of Mr. Frank of Massachusetts, and by unanimous consent,
Mr. Roskam was allowed to proceed for 5 additional minutes.)
Mr. ROSKAM. Finally, I would also like to draw attention to the
notion of, sort of what I am characterizing in my fear as that
repayment is a myth fear.
Under the manager's amendment, if a State program is somehow going to
incur losses that exceeds its maximum liabilities, shouldn't it have to
show how it is going to prevent that in the future? And there is no
point in the manager's amendment where there is that reporting
requirement. Again, I don't think that is onerous. I don't think it is
difficult, but I think it would be a good idea to require a State
before they make a claim or before they default to come forward and
say, look, this is how we are going to avoid this in the future. I
think it is a de minimis reporting requirement.
I yield to the gentleman from Florida.
Mr. KLEIN of Florida. I thank the gentleman from Illinois. The notion
of the terms of repayment are to be negotiated with the Treasury. Each
State may have a slightly different scenario in terms of terms and
conditions.
What I would expect to be negotiated would be, just like any other
private sector contract with a set of covenants and defaults in terms
of understanding what the expectations are. So I would expect the
Treasury, and if we need to get that clarified in the future, I would
be happy to, but I expect the terms to be very clear regarding
notification and things like that.
Mr. ROSKAM. I thank the gentleman.
Another observation is that States should pay the cost of the
consortium. Now, as drafted, the cost of the consortium is by Federal
taxpayers. There is no payment mechanism in the manager's amendment for
the consortium to be funded by the States. I think that is an oversight
and it should be revisited.
The manager's amendment sets up $120 million over 6 years, I think,
but I think there should be a way for the States to pony up. At least
theoretically you can contemplate where the Federal Government would
create this consortium, and maybe nobody's in. At that point it would
be a foolish enterprise. I think there has to be a way.
I yield to the gentleman.
Mr. KLEIN of Florida. I thank the gentleman from Illinois.
I think the thinking is this is an authorization. It is not an
appropriation.

[[Page H13350]]

The general notion is in the early stage of this thing, it is a
relatively small amount of dollars. It creates authorization if
necessary.
If you have a number of States that do participate, which we
anticipate, I think the language of the bill talks about the fact that
they will pay for that. The notion is there is an authorization. And to
get more States involved to pay for it, there is this limited amount of
Federal responsibility. I think the thinking is that the States will
take responsibility.
Mr. ROSKAM. Finally, on the basis of time, and I will be happy to
continue the conversation with you and the chairman, in my view, I
think the grace period for States is too long for their mitigation
efforts. For those States currently with a program in place, the
manager's amendment says all of these mitigation components are
excellent, but we are going to give you 5 years to get your act
together.
My suggestion would be let's shorten that up. Let's make it 2 years,
and I think that is still very gracious, to follow on the word of
grace. But 5 years is almost the length of the entire program that is
being proposed. That is a suggestion regarding a way that I think the
bill can be improve.
I yield to the gentleman.
Mr. KLEIN of Florida. I am a true believer, if you give somebody 5
years to do it, it will take 5 years. At the same time I realize from
the experience we have had in Florida and many other States that have
tried to move forward with building codes and other things, it does
take some time. But I am all for encouraging as strong as possible to
move as quickly as possible.
Mr. ROSKAM. I yield to the chairman.
Mr. FRANK of Massachusetts. I want to express my appreciation to the
gentleman, both for the cogency of the points he raised, because we
want this to work well, and he has helped us both previously and today
in refining this. I also appreciate his courtesy in helping us move
this. I thank the gentleman from Illinois.
Mr. ROSKAM. Mr. Chairman, I yield back the balance of my time.

{time} 1615

The Acting CHAIRMAN. The question is on the amendment offered by the
gentleman from Florida (Mr. Klein).
The question was taken; and the Acting Chairman announced that the
ayes appeared to have it.
Mrs. CAPITO. Mr. Chairman, I demand a recorded vote.
The Acting CHAIRMAN. Pursuant to clause 6 of rule XVIII, further
proceedings on the amendment offered by the gentleman from Florida will
be postponed.

Amendment No. 6 Offered by Mr. Roskam

Mr. ROSKAM. Mr. Chairman, I offer an amendment.
The Acting CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 6 offered by Mr. Roskam:
Page 21, strike lines 21 through 25.
Page 22, line 1, strike ``(C)'' and insert ``(B)''.
Page 22, line 5, strike ``(D)'' and insert ``(C)''.
Page 22, line 12, strike ``(E)'' and insert ``(D)''.
Page 22, line 17, strike ``and''.
Page 22, after line 17, insert the following new paragraph:
(7) develops, maintains, and enforces best practices in
building codes that the Secretary deems adequate to address
the natural disaster exposures of the State, taking into
consideration the geography, catastrophe risk, and building
patterns in the State; and
Page 22, line 18, strike ``(7)'' and insert ``(8)''.

The Acting CHAIRMAN. The gentleman from Illinois is recognized for 5
minutes.
Mr. ROSKAM. Thank you, Mr. Chairman.
Today I offer an amendment essential to stopping this Congress from
running down a road that I've expressed caution about earlier today,
and that is causing further government involvement in self-sufficient,
available, and reliable private markets.
Congress recently passed the National Flood Insurance Reform; and
while I didn't agree with the wind provision inclusion, it made crucial
strides in reducing damage from flooding and storms, especially in
areas suffering repeat events. However, H.R. 3355 does not specifically
prescribe mitigation guidelines. In title II, it merely alludes to
Treasury providing a general directive; and, in my view, that's not
good enough.
Currently, H.R. 3355 only requires the reinsurance fund receiving the
loan to provide coverage for properties that adhere to applicable State
building codes, leaving open the possibility that States with
substandard codes, or even lacking codes, can still access the loans.
Instead, Treasury should be required to certify that the State has
implemented best practices building codes for the applicable exposures,
taking into account the State's geography, catastrophe risk and
building patterns, which is what my amendment does here today.
This would not be a national building code, but rather, a regionally
specific criteria for program participation.
The language in my amendment also gives broad flexibility to the
Treasury to certify whether State building codes are appropriate for
the types of risks they face. It doesn't apply specific, bureaucratic
and unreachable one-size-fits-all standards for the Treasury to abide
by.
The language is necessary because the current language in the bill
would create an implicit guarantee that would result in an inequitable
Federal subsidy for certain State insurance programs and policyholders,
thus creating no need for local municipalities and developers to stop
development in risk-prone areas. This was made very clear during the
testimony that we heard in the hearings several weeks ago.
The further subsidization of rates would undermine economic
incentives to mitigate risks. Individuals facing subsidized rates would
be encouraged to take on risks that are inappropriate, specifically
putting themselves in harm's way because they don't bear the full
weight of the potential damages.
Now, I represent citizens from Illinois, and we would never choose to
participate in this program. And let me tell you, the view from
Lombard, Illinois, is very different from Key West, and God bless the
folks that live in Key West, but I don't think that the residents I
represent should be in a position to subsidize someone else's view.
Why should Illinois bail out States that can't address their own
problems? While I'm sensitive and I admire my colleagues from Florida,
I do believe that some of this is simply an exacerbation of government
programs that have completely failed. Many other States have taken into
account and addressed market issues based on increasing private market
participation.
South Carolina introduced policyholder or catastrophe savings
accounts to assist consumers and address cost issues. Louisiana and
South Carolina addressed rating and regulatory matters by encouraging
greater competition among insurers rather than rate controls that
discourage private market competition. Louisiana has committed
financial incentives for insurers to underwrite or take policies from
the residual market and write-in coastal areas. Several States have
also improved building codes and their enforcement as part of the long-
term solution to catastrophic risk.
Floods are the majority of disasters that my congressional district
faces, and we haven't sat by and waited for the government to help. The
State of Illinois has one of the strongest floodplain management
programs in the country. Illinois leads all Midwest States for the
number of NFIP-participating communities, flood insurance policies, and
flood insurance claims. Illinois outpaces the other States in local
floodplain assistance, mitigation activities, and flood control
projects.
Specifically, two cities in my district, Des Plaines and Mt.
Prospect, were badly hurt by floods in August of this year. But they
didn't suffer as much as they could have, because they are moving
forward on major flood mitigation efforts by building levees on the Des
Plaines River. This project will move hundreds of homes and businesses
out of the floodplain, thus reducing the amount of damage during flood
season and lowering insurance rates for homeowners.
There's been an unprecedented population growth and significant
development in coastal and disaster-prone areas in recent decades, and
total property exposures have increased dramatically.

[[Page H13351]]

We certainly cannot anticipate what storms will be like in the
future, but we can and should take steps to reduce and lessen these
risks.
I urge my colleagues to support this important amendment.
Mr. Chairman, I yield back the balance of my time.
Mr. KLEIN of Florida. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentleman is recognized for 5 minutes.
Mr. KLEIN of Florida. Mr. Chairman, with all due respect to my
friend, and all of us are freshmen here, Mr. Mahoney and Mr. Roskam,
we're all new to this process, but with all due respect to his approach
here, the problem with the amendment is that this takes the Federal
Government and puts its stamp of approval on local building codes.
And from my perspective, I don't think we want the U.S. Treasury or
FEMA or anybody else to be responsible for making decisions on local
building codes. These are very localized functions, certainly will
encourage mitigation, and we've got some standards in place and our
colleague from Connecticut (Mr. Murphy) in a few minutes I understand
is going to be offering a very good amendment which deals with some
Federal standards that are outside the Federal Government's role, but
some trade industry standards on building code which relate to
mitigation and reducing the hazard and reducing the potential exposure.
So while I do appreciate the fact that Illinois may have different
issues than Iowa, that has different issues than California, there's
different issues in Florida, we certainly, in my view, don't want to
federalize, if you will, the building code process. And it's something
that I believe that we should allow local governments, within the
confines of standards that are adopted by the industry, to reduce
exposure to natural disasters. I think that's a better way to do it.
So I would suggest that this amendment be opposed and that the
Members of the House vote against it.
Mr. Chairman, I yield back my time.
Mr. BAKER. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentleman from Louisiana is recognized for 5
minutes.
Mr. BAKER. Mr. Chairman, I want to make clear my motivations here for
the purposes of debate.
I certainly am in support of the Roskam amendment, but with or
without its adoption, even the underlying bill, without the manager's
amendment, is problematic. However, the manager's amendment presents an
additional level of concern above those raised at the committee
consideration.
Insurance is in the business of pricing risk, and I can honestly say
as a Louisianan we are really adjusting in a significant way to the new
risk now identified for our exposure along our coastal area.
Our legislature has responded with the adoption of a building code
that really is leading the class in the United States, and to suggest
that free markets should not price the risk and provide insurance where
they know they will lose money is not a policy that makes a great deal
of sense.
Hence, the underlying bill will provide a mechanism for the United
States Treasury to provide a security backstop to the consortium that
now is issuing insurance to Florida residents at a below-market rate.
I can recall in great detail the criticisms by many in this House by
those of us in Louisiana who are the beneficiaries of a flood insurance
program that provides coverage at a governmentally subsidized rate. For
the record, I'm for raising those premiums on Louisiana citizens to get
that program in actuarial soundness because I know without that the
program is eventually doomed.
The underlying manager's amendment, although requiring risk-based
capital, goes to great steps to avert the requirement, first by
exempting companies who now exist from the consortium for the next 5
years. Secondly, there is no full faith and credit of the beneficiary
State on the loan that's made by the United States taxpayer and
virtually no guarantee of repayment.
Let's call this what it is. It is a way to provide stability in the
Florida insurance market by accessing taxpayer money without guarantees
of repayment. What can we do to improve this?
Well, the Roskam amendment now pending is at least the most meager
step one should take who is concerned about proprietary action in the
insurance world. It does not say the Treasury Secretary will establish
the building codes. It merely says the Treasury will examine whether
there are even codes in place that are reasonable for the risks that
are presented to the occupants of low-lying coastal areas before you
extend taxpayer assistance.
It's sort of like making sure that you've taken appropriate action to
protect your family and that there's not a likelihood of probable loss,
and then you're going to sell insurance on the assumption that the risk
is low. In this case, rebuilding is taking place in low-lying areas at
a rapid pace, and there is an absolute certainty there will be a repeat
of significant storms and unquestioned amounts of loss.
At least we should say that those who are building in exposures of
great risk should exercise the highest level of construction standards
before having access to taxpayer money to pay off the loss.
Think about your constituents. How many times are we going to ask
them to pay for the decisions of others to build in low-lying coastal
areas when the coastal area residents themselves are not paying
actuarial rates for coverage they are provided.
I wish I could say it more clearly, but this is not a balanced
approach; and certainly without the Roskam amendment we are opening
this Congress and the American taxpayer to enormous financial risk
without taking the first meager steps for rational self-protection.
I urge the adoption of the Roskam amendment.
Mr. Chairman, I yield back my time.
The Acting CHAIRMAN. The question is on the amendment offered by the
gentleman from Illinois (Mr. Roskam).
The question was taken; and the Acting Chairman announced that the
noes appeared to have it.
Mr. ROSKAM. Mr. Chairman, I demand a recorded vote.
The Acting CHAIRMAN. Pursuant to clause 6 of rule XVIII, further
proceedings on the amendment offered by the gentleman from Illinois
will be postponed.

Amendment No. 14 Offered by Mr. Murphy of Connecticut

Mr. MURPHY of Connecticut. Mr. Chairman, I offer an amendment.
The Acting CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 14 offered by Mr. Murphy of Connecticut:
Page 21, strike lines 21 through 25 and insert the
following new subparagraph:
(B) require that an appropriate public body within the
State shall have adopted adequate mitigation measures (with
effective enforcement provisions) which the Secretary finds
are consistent with the criteria for construction described
in the International Code Council building codes.
Page 22, line 12, insert:
(7) to the extent possible, seeks to encourage appropriate
state and local government units to develop comprehensive
land use and zoning plans that include natural hazard
mitigation.
Page 22, after line 21, insert the following new paragraph:
(8) has been certified by the Secretary, for such year, in
accordance with an annual certification process established
by the Secretary for such purpose, as being in compliance
with the requirements under paragraphs (1) through (7).

The Acting CHAIRMAN. The gentleman is recognized for 5 minutes.
Mr. MURPHY of Connecticut. Mr. Chairman, I'd like to applaud my
colleagues, Representative Klein, Representative Mahoney and
Representative Ginny Brown-Waite, for bringing this measure before us
today.
The rising premiums in the insurance world, the instability that this
recent rash of natural catastrophes have brought to the insurance
industry mandate a response from this Congress; and it's time, as Mr.
Klein and Mr. Mahoney have said, to stop closing our eyes and pretend
that the solution is to just continue to have a policy of crisis
reaction, where we put Federal dollars after Federal dollars on top of
these disasters.
This measure before us, very carefully considered and brought to the
floor on a bipartisan basis, is a planful and market-based approach to
the

[[Page H13352]]

issue of crisis mediation, especially on the eastern seaboard.
But to the extent that we are setting up a new Federal role, to the
extent that we're contemplating potentially committing Federal dollars
through loans, frankly as Mr. Klein has said in a much more responsible
way than we have done in previous situations, we need to make sure that
these dollars are being used wisely.
Now, the manager's amendment before us right now goes a very long way
towards that goal in making sure that the programs themselves at the
State level are fiscally sound or actuarially sound.
The amendment before us, brought to the floor today by myself,
Representative Matsui, Representative Bean and Representative Larson,
seeks to build on that duty of fiscal responsibility that we have as we
potentially commit, in a planful way, Federal dollars through loans to
coastal areas.
Therefore, this amendment that we're offering today would require
that before a State insurance program qualifies to borrow from the
Federal Government, the Treasury Department will ensure that the State
has taken adequate steps to mitigate future losses. It's a pretty
common sense measure.
To do this, the amendment simply requires that the Secretary of the
Treasury certify that participating States, entities, these State
insurance funds, have implemented internationally recognized building
codes to ensure that the new homes that are being built in these States
can withstand severe natural catastrophes like earthquakes and floods
and hurricanes.

{time} 1630

These State programs have also developed land use plans to further
mitigate the risk and losses stemming from natural disasters. This
amendment doesn't provide for new Federal building codes. It doesn't
provide for new Federal land use requirements or Federal risk
mitigation regulations. It just merely seeks to assure that before we
are putting Federal tax dollars in State programs that these States
have done everything that they can to reduce future risks from natural
catastrophe.
I would like to thank my colleagues, Mr. Mahoney and Mr. Klein, for
working with me and the staffs for working with my staff on this issue.
I think it addresses many of the issues that Mr. Roskam and others on
the other side of the aisle have and will raise today. I think it
assures that this very positive step forward that has been introduced
by Mr. Mahoney and Mr. Klein will be made even safer and sounder if it
comes to the point of using Federal taxpayer dollars in these programs.
Mr. Chairman, I yield back the balance of my time.
Mr. KLEIN of Florida. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentleman is recognized for 5 minutes.
Mr. KLEIN of Florida. I would like to thank the gentleman from
Connecticut for coming up to a response to what I think the gentleman
from Illinois was raising; that is, we want to encourage mitigation. We
want to encourage reduction of the scope of the hazard.
I think all of us understand that the more you can do to protect your
home in terms of the roof, if it's an earthquake zone, the foundation,
lots of different kinds of risks out there, but the more we can do to
solidify that, the less deductible you are going to pay as a homeowner,
which is good for you as a homeowner, the less risk you are creating
for the insurance underwriter, the less payout, the less the State is
going to have to take responsibility if there is a State risk
catastrophe fund. With a Federal system to back it up, beyond that, in
terms of the State catastrophe bonds, it reduces that as well.
The whole purpose of this is to reduce that. What the gentleman from
Connecticut has come up with in a broad-based way is to bring in the
international code, council building codes, which is an organized
effort, well thought out, well designed. Instead of having the
secretary of the Treasury, which I am not quite sure who or what
qualifications he or she would have to make an independent judgment of
whether a building code makes sense or not, let's put professionals,
the experts, the people who understand building codes, let's put them
in the middle of this thing and say this is the standard by which we
will judge whether a State is doing what it is supposed to do to reduce
that risk.
I think that's a very sound, logical way of solving the problem,
encouraging the mitigation, reducing the hazard. I think it's something
that deserves to be supported.
I would like to thank the gentleman from Connecticut. Hopefully the
gentlewoman from West Virginia and the gentleman from Illinois will
join us in what I think is something that addresses their concern, and
probably we can all come together and say this is a solid way of doing
it.
Mr. Chairman, I yield back the balance of my time.
Ms. MATSUI. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentlewoman from California is recognized
for 5 minutes.
Ms. MATSUI. Mr. Chairman, I rise today to ask my colleagues to
support the Murphy, Matsui, Bean and Larson amendment.
I am sponsoring this amendment because it carries forward important
public policy initiatives. It encourages local governments to develop
comprehensive land use and zoning plans that include natural hazard
mitigation. It also requires participating States to adopt
internationally recognized building code standards.
I applaud the overall goal of this bill to provide access to
insurance coverage for homeowners and disaster-prone communities. Our
amendment today is about public safety.
As a representative from Sacramento, the Nation's most at-risk river
city for catastrophic flooding, I am all too familiar with risk and
vulnerability. Preparedness is a first step toward public safety.
Strong building codes are key to being prepared and to reducing the
damage caused by catastrophic events. This amendment ensures that
States take steps to minimize risk.
Last week, I introduced the Safe Building Code Incentive Act of 2007
to encourage States to adopt stronger building codes. Our communities
and homeowners should be better prepared, and Congress should be
setting high standards for public safety.
Over the last few weeks, residents of my home State of California
experienced devastating wildfires and an earthquake. We know that
another event will occur and that it is only a matter of time.
To rapidly growing regions around the country such as Sacramento, the
building standards we adopt now will ensure a safer future for our
communities and property owners.
In January 2006, a Louisiana State University Hurricane Center study
concluded that wind-related damage to homes by Katrina could have been
reduced by 65 percent if current building code standards had been used.
In short, we should be elevating public policy standards before
disaster impacts our communities, not after.
Our amendment today raises the standard for public safety and
encourages smarter planning to mitigate risk. I ask my colleagues to
support this amendment.
Mr. Chairman, I yield back the balance of my time.
Mr. LARSON of Connecticut. Mr. Chairman, I move to strike the last
word.
The Acting CHAIRMAN. The gentleman is recognized for 5 minutes.
Mr. LARSON of Connecticut. Mr. Chairman, let me associate myself with
the remarks earlier today of Mr. Inslee and commend two of our
colleagues for an extraordinary job they have done in putting together
this thoughtful piece of legislation, one that I think we all
understand and recognize is much needed throughout the country because
of the natural catastrophes we are bound to face.
I also want to commend them for being willing to work with everyone
on both sides of the aisle and reach out on what are some thoughtful
questions that have been posed to them and the continued manner in
which they embrace a solid piece of legislation and make it stronger.
To those ends I rise in strong support of the Murphy, Matsui, Bean and
Larson amendment that I think goes a long way towards doing that.
I commend Mr. Klein and, again, Mr. Mahoney for working to make sure
that a good bill becomes even stronger.

[[Page H13353]]

Mr. Chairman, I yield back the balance of my time.
The Acting CHAIRMAN. The question is on the amendment offered by the
gentleman from Connecticut (Mr. Murphy).
The amendment was agreed to.

Amendment No. 13 Offered by Mr. Roskam

Mr. ROSKAM. Mr. Chairman, I offer an amendment.
The Acting CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 13 offered by Mr. Roskam:
Page 17, line 2, strike ``and'' and insert a comma.
Page 17, line 8, before the period insert the following:
``, and that the qualified reinsurance program has retained
losses in excess of the amount of losses that would result
from a single event of a catastrophic peril covered by the
program of such magnitude that it has a one percent chance of
being equaled or exceeded in any year, as determined by the
Secretary''.

The Acting CHAIRMAN. The gentleman from Illinois is recognized for 5
minutes.
Mr. ROSKAM. Mr. Chairman, this is what I characterize as the skin-in-
the-game amendment.
The bill currently has no retained loss requirement for participating
State reinsurance funds before they can get a catastrophic loan from
the Treasury. Once the trigger is met, a fund may qualify for a loan
without having any skin in the game.
To improve fiscal accountability, States should be required to first
sustain a loss before receiving a loan from Treasury, similar to paying
deductible in an insurance policy. The loans could be better put to use
helping States manage their losses above the retained loss requirement.
This amendment says that before a State insurance fund can access one
of the loans created in the bill, it must first retain sufficient
losses amounting to a 1-in-100-year event with respect to State
catastrophe perils. This amendment will encourage State funds to handle
a predictable level of loss before putting Federal taxpayers on the
hook for billions of dollars in catastrophic loans.
With no retained loss requirements, State insurance funds will have
no incentives to price their risk with a catastrophe factor but,
instead, rely on post-event debt financing from the Federal Government
and Federal taxpayers. Adding the retained loss requirement in this
bill will also encourage States to utilize the global reinsurance
market instead of turning directly to the Federal Government to
capitalize their funds.
Currently, Florida is the only State with a reinsurance fund that
would qualify under this bill. The bill would undoubtedly spur the
creation of other State funds, and requiring States to have skin in the
game will encourage these new funds to properly capitalize instead of
taking out a huge loan from the Feds after every natural catastrophe.
Without loss requirements, State insurance funds will have no
incentives to actuarially price their risk since they will be getting
cheap loans to assist them in paying their claims.
I urge the adoption of the amendment and yield to the gentleman from
Louisiana.
Mr. BAKER. I thank the gentleman for yielding.
Mr. Chairman, I just want to make sure I am understanding the effect
of the gentleman's amendment properly. If I am a homeowner and I am
paying a premium for my coverage and I have a loss, there generally is
some sort of deductible, maybe $500 or $1,000, depends on what kind of
policy I will have to buy. But I am going to have to put my premium
money up, and then I am going to have to have a personal loss to get
the benefit of the insurance coverage that I bought for my home.
What you are suggesting with this amendment is that the States who
are going to avail themselves of the advantage of the Treasury extended
loan are going to have to have their own money in the game. They can't
just call up and say, Mr. Secretary, send me a few billion dollars. I
am kind of short right now. They are going to have to have their own
State losses in their own insurance pool before they can get access to
the United States Treasury extension of credit; is that correct?
Mr. ROSKAM. The gentleman has an incredible gift of clarity and
insight, and that is exactly it.
Mr. BAKER. My point here is in speaking, in asking the gentleman the
question, is it is absolutely essential, no matter what the government
program or service, did you know, that whoever is the beneficiary
always makes some contribution to his own well-being or else the
program will run amok. There will be no reason to exercise constraint.
You are absolutely correct. Premiums charged will never be
actuarially sound. The gentleman's amendment, which in my opinion is,
by the way, insightful and articulate, has drafted a constructive
amendment which I hope others will find beneficial.
Mr. ROSKAM. Reclaiming my time, I think part of the reason we are in
this state today and one of the reasons we are having this conversation
is because of, really, a lack of some of those commonsense approaches
towards their problem in the past, which is now why Representative
Klein and Representative Mahoney feel in good faith that they have got
to come here on behalf of their constituents, and I understand that.
I would submit that this amendment brings some clarity, brings a
little bit of pause, brings some reality to this so that over a period
of time a future Congress doesn't have to come in and request an
abundance from the Federal Treasury due to mismanagement and squander.
Mrs. CAPITO. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentlewoman from West Virginia is recognized
for 5 minutes.
Mrs. CAPITO. Mr. Chairman, I rise in support of Mr. Roskam's very
thoughtful amendment. I feel that it helps to work this bill, which I
have obviously voiced some questions about, because it would simply
require States to pay their fair share before tapping into a Federal
line of credit. This will encourage State funds to handle a predictable
level of loss before putting Federal dollars and Federal taxpayers on
the hook for what could be billions of dollars in catastrophic loans.
Very briefly, I would like to say, without loss requirements, State
reinsurance funds will have no incentive to actuarially price their
risk since they will be getting cheap loans to assist them in paying
their claims. I would like to voice support for the Roskam amendment.
Mr. Chairman, I yield back the balance of my time.
Mr. KLEIN of Florida. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentleman is recognized for 5 minutes.
Mr. KLEIN of Florida. Mr. Chairman, let's get down to the bottom of
what we are trying to accomplish here. There is a problem in the United
States, in certain parts of the United States, where the insurance
market, unfortunately, cannot deal with a very large disaster.
Now, some of our colleagues may not have been exposed to this problem
because in their markets they haven't had any large-scale natural
disasters, but the more time that passes, the more communities are
affected by large-scale natural disasters.
The impact of a very large-scale natural disaster is that the
insurance industry in these areas retrenches, pulls back, cancels
policies or they call them nonrenewal.
I have to tell you, one of the most frustrating things after living
through some hurricanes in Florida was members of my communities
calling me up, as a State Senator, saying, I paid my premium for 15
years straight, and now I am afraid to make a claim because I have had
some damage, never made a claim before, but I am afraid to make a claim
because the insurance company is going to cancel me.
Something is wrong with the market, free market, as we like to think
of it, if that is happening. People want to know the bargain is if I
have paid my premium my insurance company is going be there and there
is some stability behind it.
What we have tried to do is recognize that in some cases, not many,
but in some cases, and the very high scale of large-scale natural
disasters, there is some reaction that has to be provided. What we have
done, instead of putting the government in the middle of it, which is
exactly where it is right night now, no matter how you slice it, every
time there is a large-scale natural disaster that the insurance company
can't

[[Page H13354]]

deal with, the States can't deal with, then the Federal Government
comes rushing in, from Washington, with a big check.
What we have been trying to do is something proactive, up front. We
have come up with some plans from experts in the insurance industry and
the consumer side and everything else to balance this out.
What this amendment does is it arbitrarily limits the ability of
programs to meet the reinsurance needs of the respective States not
provided for by the private sector. The limit shows, and it is a 100-
year event. Why 100? Why 1 in 100? Why not 1 in 50? Why not 1 in 250?
As you can imagine, a 1-in-250-year event really changes the dynamics
of the equation of what will have to be paid in reserves and make sure
that the money is there.
They have chosen 100 years. That is consistent with the way we have
very carefully, with a lot of input, chosen to work on this formula. We
have chosen events where the losses have exceeded 150 percent of the
aggregate amount of direct premium over the prior year.

{time} 1645

That is a direct reflection of what's going on in that local market,
how much premium's been paid. It's a 1.5 factor over and above that.
It's very well thought out. It may not be perfect. It may be over time
there's a better way to do it, but this is a very consistent approach
we've taken throughout the bill.
If you adopt this amendment, we are now creating two inconsistent
measures which I don't think will ever work together. So I would
suggest that this amendment not be adopted.
I believe that we have come up with something that is logical, it's
common sense, it reacts to the fact that there is a need here.
And again, for those folks who live in parts of the country that
don't have natural disasters up to this point, let's all continue to
pray and hope that we don't have many natural disasters.
But we're a country that's in this together. Certainly our insurance
is something that we want to make sure everyone has the ability to have
private homeowners insurance. But more importantly, every taxpayer is
part of a bail out. We're trying to avoid that for the future.
So I would suggest the amendment should not be supported.
I yield back my time, Mr. Chairman.
Mr. MAHONEY of Florida. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentleman is recognized for 5 minutes.
Mr. MAHONEY of Florida. I'd like to join in support of my friend here
from Florida (Mr. Klein) in opposing this amendment.
The point I'd like to make is very simple, and that is, the whole
purpose of the bill is to stabilize the private homeowners insurance
marketplace. And the goal of the bill is to work with the industry to
continually find ways to expand the market so that the market takes the
responsibility.
Right now, the problem that we're facing in the homeowners insurance
market is unfunded liability, where we have the opportunity or the
specter of a disaster, where the combination of States and the
insurance industry do not have the financial wherewithal to pay claims.
The purpose of this bill in the first title is to try to work with
States to consolidate risk in order to expand the private market's
activity so that it can handle these claims.
So when the gentleman from Illinois proposes to arbitrarily set a 1-
in-100-year mark, what it's doing is it's running counter to the goal
of the legislation, which is to get the private insurance companies to
take on more and more of the responsibility.
So with that, I think that the bill that we have right now recognizes
that there needs to be some variability in some cases. One in 100
years, depending on States, might be too little; and in some cases it
might be too much.
So, therefore, I would urge that this amendment be defeated.
I yield back the balance of my time.
Mr. BAKER. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentleman from Louisiana is recognized for 5
minutes.
Mr. BAKER. Mr. Chairman, I wish to make clear that my interest in
this matter is based on my representation of a portion of coastal
Louisiana, so I get the problem. And we are struggling, even today, 2
years after Katrina, in trying to restore our State to what it once
used to be. So I do not come to the floor in opposition to this matter
in a cavalier manner.
The statement that this bill is intended to keep the American
taxpayers from being responsible financially for future natural
disasters is in direct contravention with the effect of the bill, if it
ever does become law.
Let's start with the basics. People didn't like the fact that some
Louisianans built at the water's edge. How can we be more responsible
and elevate structures and build them to a certain code?
I support Mr. Roskam's amendment, which provides that the Secretary
of the Treasury, before making such a loan, shall certify that the
recipient entity in question has such safe and sound building codes.
Sounds logical to most taxpayers, I would think.
The pending amendment simply says that the recipient entity getting
the benefit of the Treasury loan shall have its own money at risk, and
shall have suffered some monetary loss.
One-in-100 event. Some have suggested this is just a number pulled
out of the air. It is a typical actuarial number of risk used by the
insurance industry in rating the likelihood of recovery of loss in
policies nationwide. It's not something that one can say was simply
grabbed out of the air.
The risk-based capital provisions in the manager's amendment are
completely obliterated for the first 5 years for companies now in
existence in the program who would qualify for such loans. And in the
event a loan would be made, there's a specific prohibition that the
full faith and credit of the State getting the benefit of the credit
would not be placed on that note. Translation: they don't have to pay
this back.
Now, the bigger point is that when you look at the applicability of
where NATCAT, national catastrophe funds, would likely be made
operational, Florida, yes, California, maybe, and ladies and gentlemen
of the Congress, not anywhere else.
Our insurance commissioner in our State has carefully evaluated the
advantages and possibility of a NATCAT structure being utilized in
Louisiana. It will not work. The applicability of this program will be
for a narrow, narrow slice of the insurance market at risk on coastal
Louisiana.
There are much better ways to do this. But do not support this
measure on the assumption that the American taxpayer will not be put at
risk.
In fact, if you really dig into the bill, you find a little provision
that says commercial residential may be covered if the Secretary of the
Treasury determines that the benefits are appropriate, without any
conditions as to the requirement, style, nature or manner of repayment.
We're going to be taking care of Hilton and their golf courses.
Really, really take a careful look at this. I am troubled to be
opposed to a bill that could potentially be beneficial to my own State
and my own constituents. But I have arrived at the conclusion that this
is not the right way to perform this task. And not enough careful
thought from varied interests has been taken into consideration in this
matter.
I urge you, please adopt the Roskam amendment.
I yield back the balance of my time.
The Acting CHAIRMAN. The question is on the amendment offered by the
gentleman from Illinois (Mr. Roskam).
The question was taken; and the Acting Chairman announced that the
noes appeared to have it.
Mr. ROSKAM. Mr. Chairman, I demand a recorded vote.
The Acting CHAIRMAN. Pursuant to clause 6 of rule XVIII, further
proceedings on the amendment offered by the gentleman from Illinois
will be postponed.

Amendment No. 2 Offered by Ms. Castor

Ms. CASTOR. Mr. Chairman, I offer an amendment.
The Acting CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 2 offered by Ms. Castor:
Page 21, after line 25, insert the following new
subparagraphs:

[[Page H13355]]

(C) limit new development and increases in density,
intensity, or range of use allowances in zoning and planning
programs in coastal and other areas subject to a higher risk
of catastrophic financial loss from natural disasters and
catastrophic events, as such areas are determined in
accordance with standards established by the Secretary, in
consultation with the Administrator of the Federal Emergency
Management Agency and other appropriate agency heads;
(D) limit rebuilding of substantially demolished structures
after catastrophic events to current density, intensity, use,
and structural limits;
Page 22, line 1, strike ``(C)'' and insert ``(E)''.
Page 22, line 5, strike ``(D)'' and insert ``(F)''.
Page 22, line 12, strike ``(E)'' and insert ``(G)''.

The Acting CHAIRMAN. The gentlewoman from Florida is recognized for 5
minutes.
Ms. CASTOR. Mr. Chairman, I rise to offer an amendment that, over
time, will keep insurance rates down by directing that State and local
governments not approve intensified development in high-risk areas like
our coastal high-hazard areas.
Insurance premiums are on the rise for many reasons, but one of the
most significant reasons for skyrocketing costs of insurance is
developer overbuilding in high-risk areas.
Developers and homebuilders have crowded on to the coasts and into
the flood plains, fire zones, and other high-risk areas, without
considering the consequences. The subsequent consequences to the folks
that we represent have been very expensive.
These developers set up homeowners and businesses for financial ruin
and personal tragedy when they locate in areas that are at high risk of
natural disasters, and the developers are profiting at the expense of
every policyholder whose premiums continue to rise without relief once
another disaster hits.
Unfortunately, State and local governments have been too often
complicit in this irresponsible behavior.
The amendment I offer today requires that States that participate in
this innovative risk pool adopt policies to limit development in high-
risk areas. It would also end the practice of rebuilding properties
after a catastrophe with development that is of a greater size or a
greater density or intensity, because the right to rebuild in high-risk
areas is not the right to expand.
Now, this bill, carefully crafted by my thoughtful colleagues from
Florida, provides States with an innovative tool to tackle the property
insurance crisis. And my amendment improves the bill by preventing any
greater problems down the road. The amendment aims to stop developer
overbuilding that will lead to even greater disasters in the future and
higher property insurance rates.
Now, I do appreciate the suggestion from the chairman of the
Financial Services Committee that this amendment can be improved still,
and I'll yield to the gentleman, because I am interested in your advice
and assurance that maybe down the road, if I happen to withdraw the
amendment, that we can work to improve.
Mr. FRANK of Massachusetts. Mr. Chairman, will the gentlewoman yield?
Ms. CASTOR. I yield to the gentleman from Massachusetts.
Mr. FRANK of Massachusetts. I thank the gentlewoman. I appreciate the
initiative, and she's clearly right in concept.
We would say that this bill, we hope, will pass today, but it's not
going to pass the Senate until we come back early next year. We do
obviously hope to get this bill in place before the next hurricane
season so we could get started. But that would give us time to work on
this before our final passage was done.
And as the gentlewoman understands, because she's been involved
herself, the State-Federal issue can become complicated. So while we
very much agree on the substance, we don't want to engender a kind of
State-Federal issue which could go beyond Florida. This is obviously
something for all the States.
So with that in mind, it's a common objective, indeed. We think the
gentleman from Connecticut's amendment goes in that general direction.
But we really want to be very careful about the State-Federal-local
interactions here.
So if the gentlewoman is agreeable, we would be working with her
between now and some time in March or April when we finally hope to get
this bill done so we can improve these kinds of requirements, but in a
way that isn't going to jeopardize the whole thing by a big Federal-
State dispute.
Ms. CASTOR. I greatly appreciate the assurances by the chairman; and
with those assurances, I'd like to thank my colleagues again from
Florida for this very innovative, thoughtful tool to reduce property
insurance rates. And at this time I will withdraw my amendment.
Mr. FRANK of Massachusetts. I appreciate that. I also appreciate the
fact that today no Republicans object to you withdrawing the amendment.
The Acting CHAIRMAN. Without objection, the amendment is withdrawn.
There was no objection.

Amendment No. 1 Offered by Mr. Manzullo

Mr. MANZULLO. Mr. Chairman, I offer an amendment.
The Acting CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 1 offered by Mr. Manzullo:
Page 15, line 2, strike ``and''.
Page 15, line 5, strike the period and insert ``; and''.
Page 15, after line 5, insert the following new paragraph:
(6) the qualified resinsurance program and the State
authorizing the program are not delinquent, as determined by
the Secretary, with respect to any payment due under any loan
previously made under this Act or under any other loan
provided by any agency or establishment of the Federal
Government to the program or the State for assistance in
connection with a natural or other major disaster.

The Acting CHAIRMAN. The gentleman from Illinois is recognized for 5
minutes.
Mr. MANZULLO. Mr. Chairman, H.R. 3355 requires the Treasury
Department to offer low-cost subsidized Federal loans to State
reinsurance funds. This bill employs the lesser used loan approach for
States, rather than block grants or emergency funding, the usual
methods of Federal assistance.
The concept of the loan is unique from a block grant, as a loan
implies a temporary extension of funds with agreed-upon terms of
repayment. The concept of a loan also implies that there are
consequences for those who do not abide by the terms of the loan, such
as ineligibility to receive additional loans should one become
delinquent on a current loan. It is not in the lender's interest to
lend money to someone who has proven that he or she will not pay it
back according to the contracted terms.
This bill contains no prohibition on continued lending to States that
are delinquent on loans authorized under this bill or extended through
other Federal entities as found in other Federal loan programs. This
consequence free-lending program will also allow States that choose to
ignore the repayment responsibility to treat the loans as being in a
state of eternal deferral, and expose the taxpayer to a tremendous
amount of risk.
My amendment seeks to protect the taxpayer by insuring that Federal
loans go only to States with a proven track record of fiscal
responsibility. Specifically, this fiscally responsible amendment will
disqualify States that are delinquent on any Federal disaster loans
from receiving additional loans under this program.
H.R. 3355 already entitles these States to subsidized loans at below-
market rates from the Federal Government. It only makes sense that they
should be held to the same responsible standard that applies in the
private market and elsewhere in the Federal Government. Without this
standard, the loan program becomes no different than a block grant or a
taxpayer-financed giveaway.

{time} 1700

H.R. 3355 requires very little of the States in the way of mitigation
to reduce the cost to taxpayers. By ensuring that States act
responsibly before receiving another subsidized loan, my amendment is a
small but important step towards protecting the interest of the tax-
paying Americans that will be funding this bill.
I urge support for this amendment and would cite as precedent TANF

[[Page H13356]]

funds, for example, under title 42, chapter 7, a failure to timely
repay a Federal loan fund for State welfare programs, if the Secretary
determines that a State has failed to repay any amounts borrowed from
the Federal loan program, then they become ineligible or that the
amounts they receive in the future are deducted to pay the prior
amounts that are due.
I would urge support of this amendment. This makes sure that this is
a loan program and not a grant program.
Mr. Chairman, I yield back the balance of my time.
Mr. KLEIN of Florida. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentleman is recognized for 5 minutes.
Mr. KLEIN of Florida. Mr. Chairman, I appreciate the gentleman from
Illinois' proposition that if you are in default, you probably
shouldn't be able to get anything further because maybe you haven't
acted responsibly. But there are two faults that make this amendment
unnecessary.
Number one, if a State is a recipient of a loan and it has defaulted
or hasn't made the terms of payback, that has nothing to do with a
State risk catastrophe fund, which is independent of the State. Most
State risk catastrophe funds are not backed by the full faith and
credit of the State. They're separate, independent organizations. So
one has really nothing to do with the other. The fact that the State of
Illinois may not have paid back something that it had received from the
Federal Government should have nothing to do with an Illinois risk
catastrophe fund if it has been doing whatever it's supposed to do. So
I think that's number one.
Number two, the notion of the one disaster and then the Illinois risk
catastrophe fund defaulting or not paying back, we have already taken
care of that problem in terms of a future disaster that hits Chicago.
And that is the Treasury who would be responsible for authorizing the
second loan would not grant that. It is already provided in the content
of our bill.
So I do support the proposition that if you are in default, you
probably shouldn't be a continued further drag. And I think that we
have taken care of that in the bill, and I think it's not necessary to
pass this amendment.
Mr. MANZULLO. Mr. Chairman, will the gentleman yield?
Mr. KLEIN of Florida. I yield to the gentleman from Illinois.
Mr. MANZULLO. It's obvious that the gentleman agrees with me on the
absolute necessity of making sure that this is a loan program and not a
grant program. This amendment simply gives more teeth to the assurance
that the gentleman gave us as to the language that is in the bill.
Therefore, I would suggest that he agree with the amendment.
Mr. KLEIN of Florida. Reclaiming my time, Mr. Chairman, I don't agree
with the amendment because what it does is it creates an unnecessary
regulatory burden. You already have in place the Treasury. Our Treasury
Department in Washington would look at it. There's a default. Under the
current language of the bill. Take a look at the language of the bill.
It specifically says they would not be entitled to another loan, so
we've already taken care of that problem.
As it relates to the State itself being in default, the State is
independent of a State risk catastrophe fund. So the fact that the
State of Illinois doesn't repay something to the Federal Government
doesn't necessarily or should not necessarily put a burden on an
independent organization that has a State risk catastrophe fund that
does not operate under the full faith and credit of the State of
Illinois.
So, again, I support the notion that a deadbeat should not receive
more. But, again, we are dealing with States and organizations where
we've already taken care of the problem or that we are looking to solve
a problem that really isn't there.
So I would suggest that this amendment should be opposed. It's
unnecessary and duplicative, and I think we've already addressed the
problem very clearly in the legislation.
Mr. MAHONEY of Florida. Mr. Chairman, will the gentleman yield?
Mr. KLEIN of Florida. I yield to the gentleman from Florida.
Mr. MAHONEY of Florida. I would just like to also point out, too,
that after an event of a natural catastrophe, I don't think it's in
anybody's best interest in terms of getting people back in their homes
and preserving communities to get into an administrative argument as to
whether or not a particular loan has been paid or repaid based on
what's going on between the State and a particular community that's in
need of funding.
So although I appreciate the gentleman's point, I think that the
danger here is that there could be a lot of ways that people could look
at this issue and determine that there is a conflict between the way a
State looks at a particular loan.
And it's not just catastrophe loans, as the gentleman's amendment
talks about. It's any loan where there might be a conflict between the
State and the Federal Government. And all I can tell you is that I
don't think you would want to put your citizens in a bureaucratic mess
when they are out of their homes and they need to get back in and that
we need to save their communities.
Mrs. CAPITO. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentlewoman from West Virginia is recognized
for 5 minutes.
Mrs. CAPITO. Thank you, Mr. Chairman.
I yield to the gentleman from Illinois.
Mr. MANZULLO. Thank you.
I actually concur with what the gentleman from Florida said. But what
he was talking about was in terms of the traditional FEMA emergency
funds. That's not the topic of this bill. Those funds are totally
separate and independent of the topic that we have here.
What we are talking about is making loans to the reinsurance fund of
the State. We're not talking about emergency grants under FEMA, nor are
we talking about emergency loans under the Small Business
Administration for purpose of reconstruction or for loss of business,
et cetera. This is an entirely separate program to make sure that the
reinsurance fund of each State remains solvent.
What we are saying here is that we want to make this as ironclad as
possible that this not become a grant program but that it is a loan
program. And the only way to make sure that that is the case is that
those States that are delinquent as to repayment on these funds simply
do not qualify to accept any more funds. What that does is it places
the responsibility upon the States to come up with a plan themselves in
order to make sure that their reinsurance fund would remain solvent.
Mr. KLEIN of Florida. Mr. Chairman, will the gentlewoman yield?
Mrs. CAPITO. I yield to the gentleman from Florida.
Mr. KLEIN of Florida. I'm looking back at the amendment. And the
point I was trying to make, which I think is pretty clear here, is that
it says ``under any loan previously made under this Act or any loan
provided by any agency or establishment of the Federal Government to
the program,'' that's the risk catastrophe fund, ``or the State for
assistance in connection with a natural or other major disaster.''
First of all, a question for you is the money that goes to a State,
are you talking about FEMA money?
Mr. MANZULLO. Is it FEMA money?
Mr. KLEIN of Florida. You're saying ``the State for assistance in
connection with a natural or other major disaster.'' To the State.
You're saying if there's a default in money that went to the State.
Mr. MANZULLO. Right. FEMA doesn't lend money to the States.
Mr. KLEIN of Florida. Then what are you referring to? What is the
default you're speaking of, then?
Mr. MANZULLO. Under this program. If you are in default under this
program, then you are not eligible to receive further moneys.
Mr. KLEIN of Florida. There is no money that under this program goes
to the State. It goes to the participants of the risk catastrophe
funds. Those are independent.
Mr. MANZULLO. But it is set up under the State. What reassurance can
you give that these loans will be paid and paid on time? That's what I
am trying to get at.
Mr. KLEIN of Florida. The way this is designed is that the loans are
structured between the risk catastrophe fund and the Treasury under
terms and conditions that are acceptable to the

[[Page H13357]]

Treasury. Now, if there is a default under those terms and conditions,
it's already clear in our bill that the Treasury will not lend under
any future natural disaster, if that's what you are concerned about,
and I think it says here. It's already part of the bill, and I think
that answers the question.
Mr. MANZULLO. I think the gentleman and I agree on the fact that the
loan should be repaid and not be a grant, but I think we disagree
fundamentally on how it would be administered. That's why this
amendment is a backup amendment to make sure that the loans are repaid.
Mrs. CAPITO. Reclaiming my time, Mr. Chairman, I would like to ask
the gentleman if he could show us where in the bill it states that the
Treasury has that kind of discretion in this particular case.
Mr. KLEIN of Florida. The good news is that we are in agreement that
we certainly want to make sure this is fiscally sound and responsible.
I think we all agree on that.
The only thing I'm suggesting, as we pull up this language, is that
it's already in the bill. The intention is that the Treasury have this
authority. If it isn't clear, we would be glad to fix it. But I think
it is crystal clear and we'll just pull it up.
The Acting CHAIRMAN. The time of the gentlewoman from West Virginia
has expired.
(By unanimous consent, Mrs. Capito was allowed to proceed for 1
additional minute.)
Mrs. CAPITO. I yield to the gentleman from Florida.
Mr. KLEIN of Florida. I thank the gentlewoman for yielding.
The Full Taxpayer Repayment section of the bill, page 20, line 6:
``The Secretary shall require the full repayment of all loans made
under this title. If the Secretary determines at any time that such
full repayment will not be made, or is likely not to be made, the
Secretary shall promptly submit a report to the Congress explaining why
such full repayment will not be made or is likely not to be made.''
Mrs. CAPITO. Did you say page 20, section c?
Mr. KLEIN of Florida. Line 6, section c.
Mrs. CAPITO. Thank you.
The Acting CHAIRMAN. The question is on the amendment offered by the
gentleman from Illinois (Mr. Manzullo).
The question was taken; and the Acting Chairman announced that the
noes appeared to have it.
Mr. MANZULLO. Mr. Chairman, I demand a recorded vote.
The Acting CHAIRMAN. Pursuant to clause 6 of rule XVIII, further
proceedings on the amendment offered by the gentleman from Illinois
will be postponed.

Amendment No. 4 Offered by Mr. Matheson

Mr. MATHESON. Mr. Chairman, I offer an amendment.
The Acting CHAIRMAN. The Clerk will designate the amendment.
The text of the amendment is as follows:

Amendment No. 4 offered by Mr. Matheson:
Page 8, line 24, before the period insert the following:
``, and the first such annual report shall include an
assessment of the costs to States and regions associated with
catastrophe risk and an analysis of the costs and benefits,
for States not participating in the Consortium, of such
nonparticipation.''

The Acting CHAIRMAN. The gentleman from Utah is recognized for 5
minutes.
Mr. MATHESON. Mr. Chairman I rise today, first of all, in strong
support of H.R. 3355, the Homeowners' Defense Act, and I offer an
amendment that I believe will further support the intent of this
legislation, namely to better enable State-sponsored reinsurance
programs to protect themselves by transferring catastrophic risk into
capital markets.
I should first commend Congressman Klein and Congressman Mahoney for
their proactive approach in this legislation, which allows States to
responsibly plan for disasters ahead of time by pooling risk. By
accessing capital markets to transfer risk, State-sponsored insurance
funds will be better protected in the event of future disaster and will
be increasingly able to provide affordable services for homeowners.
This legislation will provide an important backstop for many of the
larger State-sponsored insurance plans but will also provide States
like my home State of Utah with an opportunity to prepare for future
catastrophes. The State of Utah does not currently have a State-
sponsored catastrophic insurance plan but is considering developing
one.
Utah has been ranked as one of the top ten U.S. earthquake States in
the United States, and in some areas of the State, catastrophe risks
also include wildfires, flooding, and mudslides. Of course many of
these risks are unique to Utah, but many of these risks, things like
fault lines or forest ranges, are spread over many States. I believe
that States should be assessing many of these risks on a regional basis
given the nature of those risks.
Very simply, Mr. Chairman, my amendment would require that the first
annual report of the consortium that's established by this legislation
should include an assessment of the costs associated with catastrophic
risk for States and regions and an analysis of the costs and benefits
of participation in the program for States that are not part of the
consortium.
It is my hope that in providing States with an assessment of the
catastrophic risks posed to their respective State and region and the
costs associated with trying to address those risks, those States could
evaluate and consider developing a State-sponsored catastrophic
insurance plan if they do not already have one. I believe this
legislation provides an important mechanism for States to protect
themselves in the event of catastrophe, and I urge support of this
amendment so that States can make a more informed decision going
forward.
Mr. Chairman, I yield back the balance of my time.
Mrs. CAPITO. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentlewoman from West Virginia is recognized
for 5 minutes.
Mrs. CAPITO. Mr. Chairman, I have no opposition to Mr. Matheson's
amendment.
I just want to go back to the last point we were taking about with
Mr. Manzullo, the gentleman from Illinois. His amendment was putting
forth the fact that if there is a loan to the State under these
provisions that if they were in default or were not repaying their loan
that there shouldn't be any further loans.

{time} 1715

And the gentleman offered me a clarification by reading me some text.
On further looking at the text, yes, the text does say that the
Secretary of the Treasury requires full payment of the loan; but it
also says that the Secretary can then determine that if full repayment
is not made or is unlikely to be made, that the only punishment or the
only enforcement mechanism is the Secretary will then submit a report
to the Congress explaining why repayment is not being made. It does not
state in here, at least to my mind in the way I read it, that that
State would be precluded from being able to attain another or further
loan under the provisions of this bill.
I appreciate the opportunity to make that clarification. I think it
strengthens Mr. Manzullo's amendment, which I fully support. And,
again, I thank the gentleman for his indulgence.
Mr. KLEIN of Florida. Mr. Chairman, I move to strike the last word.
The Acting CHAIRMAN. The gentleman is recognized for 5 minutes.
Mr. KLEIN of Florida. I want to thank the gentleman from Utah for an
excellent amendment which really adds some good value to the bill. And
basically what it does is it creates a metric by which States can
determine whether joining the consortium in the future would provide a
benefit. It's information. The more information the States have, the
better, the more consumers will benefit. I think that's the kind of
ongoing accountability, both to the taxpayers and to the States
themselves, in terms of whether this is something that a particular
State should join.
So I appreciate the suggestion. We didn't think of it. It's another
good example of us all coming together and trying to put something
together that makes some sense. So I would like to support the
amendment, and I thank the gentleman.
Mr. Chairman, I yield back the balance of my time.
The Acting CHAIRMAN. The question is on the amendment offered by

[[Page H13358]]

the gentleman from Utah (Mr. Matheson).
The amendment was agreed to.
The Acting CHAIRMAN. The Committee will rise informally.
The Speaker pro tempore (Mr. Mahoney of Florida) assumed the chair.

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