[House Report 105-687]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     105-687
_______________________________________________________________________


 
             HOMEOWNERS' INSURANCE AVAILABILITY ACT OF 1998

                                _______
                                

 August 7, 1998.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. Leach, from the Committee on Banking and Financial Services, 
                        submitted the following

                              R E P O R T

                             together with

                    ADDITIONAL AND DISSENTING VIEWS

                        [To accompany H.R. 219]

  The Committee on Banking and Financial Services, to whom was 
referred the bill (H.R. 219) to establish a Federal program to 
provide reinsurance for State disaster insurance programs, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Homeowners' Insurance Availability Act 
of 1998''.

SEC. 2. CONGRESSIONAL FINDINGS.

  The Congress finds that--
          (1) the rising costs resulting from natural disasters have 
        placed a strain on homeowners' insurance markets in many areas, 
        jeopardizing the ability of many consumers to adequately insure 
        their homes and possessions;
          (2) the lack of sufficient insurance capacity threatens to 
        increase the number of uninsured homeowners, which, in turn, 
        increases the risk of mortgage defaults and the strain on the 
        Nation's banking system;
          (3) some States have intervened to ensure the continued 
        availability of homeowners' insurance for all residents;
          (4) it is appropriate that efforts to improve insurance 
        availability be designed and implemented at the State level;
          (5) while State insurance programs may be adequate to cover 
        losses from most natural disasters, a small percentage of 
        events are likely to exceed the financial capacity of these 
        programs and the local insurance markets;
          (6) limited Federal reinsurance will improve the 
        effectiveness of State insurance programs and private insurance 
        markets and will increase the likelihood that homeowners' 
        insurance claims will be fully paid in the event of a large 
        natural catastrophe;
          (7) it necessary to provide, on a temporary basis, a Federal 
        reinsurance program that will promote stability in the 
        homeowners' insurance market in the short run and encourage the 
        growth of reinsurance capacity by the private and capital 
        markets as soon as practical;
          (8) such Federal reinsurance program should not remain in 
        existence longer than necessary for the private entities or the 
        capital markets, or both, to provide adequate reinsurance 
        capacity to address the current homeowners' insurance market 
        dislocations caused by various disasters; and
          (9) any Federal reinsurance program must be founded upon 
        sound actuarial principles and priced in a manner that 
        minimizes the potential impact on the Treasury.

SEC. 3. PROGRAM AUTHORITY.

  (a) In General.--The Secretary of the Treasury shall carry out a 
program under this Act to make reinsurance coverage available through--
          (1) contracts for reinsurance coverage under section 6, which 
        shall be made available for purchase only by eligible State 
        programs; and
          (2) contracts for reinsurance coverage under section 7, which 
        shall be made available for purchase by purchasers under 
        section 7(a)(1) only through auctions under section 7(a).
  (b) Purpose.--The program shall be designed to make reinsurance 
coverage under this Act available to improve the availability of 
homeowners' insurance for the purpose of facilitating the pooling, and 
spreading the risk, of catastrophic financial losses from natural 
disasters and to improve the solvency of homeowners' insurance markets.
  (c) Contract Principles.--Under the program under this Act, the 
Secretary shall offer reinsurance coverage through contracts with 
covered purchasers, which contracts--
          (1) shall not displace or compete with the private insurance 
        or reinsurance markets or capital markets;
          (2) shall minimize the administrative costs of the Federal 
        Government;
          (3) shall, in the case of any contract under section 6 for 
        eligible State programs, provide coverage based solely on 
        insured losses within the State of the eligible State program 
        purchasing the contract; and
          (4) shall, in the case of any contract under section 7 for 
        purchase at auction, provide coverage based solely on insured 
        losses within the region established pursuant to section 7(a) 
        for which the auction is held.

SEC. 4. QUALIFIED LINES OF COVERAGE.

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

SEC. 5. COVERED PERILS.

  Each contract for reinsurance coverage made available under this Act 
shall cover losses that are--
          (1) proximately caused by--
                  (A) earthquakes;
                  (B) perils ensuing from earthquakes, including fire 
                and tsunami;
                  (C) tropical cyclones having maximum sustained winds 
                of at least 74 miles per hour, including hurricanes and 
                typhoons; or
                  (D) volcanic eruptions; and
          (2) in the case only of a contract under section 6, insured 
        by the eligible State program purchasing the contract.
The Secretary shall, by regulation, define the natural disaster perils 
under paragraph (1).

SEC. 6. CONTRACTS FOR REINSURANCE COVERAGE FOR ELIGIBLE STATE PROGRAMS.

  (a) Eligible State Programs.--A program shall be eligible to purchase 
a contract under this section for reinsurance coverage under this Act 
only if the program is a State-operated program that complies with the 
following requirements:
          (1) Program design.--The program shall be a State-operated--
                  (A) insurance program that offers coverage for homes 
                (which may include dwellings owned under condominium 
                and cooperative ownership arrangements) and the 
                contents of apartments to State residents because of a 
                finding by the State insurance commissioner or other 
                State entity authorized to make such determination that 
                such a program is necessary in order to provide for the 
                continued availability of such residential coverage for 
                all residents; or
                  (B) reinsurance program that is designed to improve 
                private insurance markets which offer coverage for 
                homes (which may include dwellings owned under 
                condominium and cooperative ownership arrangements) and 
                the contents of apartments because of a finding by the 
                State insurance commissioner or other State entity 
                authorized to make such determination that such a 
                program is necessary in order to provide for the 
                continued availability of such residential coverage for 
                all residents.
          (2) Tax status.--The program shall be structured and carried 
        out in a manner so that the program is exempt from all Federal 
        taxation.
          (3) Coverage.--The program shall cover only a single peril.
          (4) Earnings.--The program may not provide for the 
        redistribution of any part of any net profits of the program to 
        any insurer that participates in the program.
          (5) Mitigation.--
                  (A) In general.--The program shall include mitigation 
                provisions that require that not less than 10 percent 
                of the net investment income of the State insurance or 
                reinsurance program be used for programs to mitigate 
                losses from natural disasters for which the State 
                insurance or reinsurance program was established. For 
                purposes of this paragraph, mitigation shall include 
                methods to reduce losses of life and property.
                  (B) Exception.--Notwithstanding subparagraph (A), in 
                the case of any State for which the Secretary has 
                determined, pursuant to a request by the State 
                insurance commissioner, that the 10 percent requirement 
                under subparagraph (A) will jeopardize the actuarial 
                soundness of the State program, subparagraph (A) shall 
                be applied by substituting ``5 percent'' for ``10 
                percent''.
          (6) Requirements regarding coverage.--
                  (A) In general.--The program--
                          (i) may not involve cross-subsidization 
                        between any separate property and casualty 
                        lines covered under the program;
                          (ii) shall include provisions that authorize 
                        the State insurance commissioner or other State 
                        entity authorized to make such a determination 
                        to terminate the program if the insurance 
                        commissioner or other such entity determines 
                        that the program is no longer necessary to 
                        ensure the availability of homeowners' 
                        insurance for all State residents; and
                          (iii) shall provide that, for any insurance 
                        coverage for homes (which may include dwellings 
                        owned under condominium and cooperative 
                        ownership arrangements) and the contents of 
                        apartments that is made available under the 
                        State insurance program and for any reinsurance 
                        coverage for such insurance coverage made 
                        available under the State reinsurance program, 
                        the premium rates charged shall be amounts 
                        that, at a minimum, are sufficient to cover the 
                        full actuarial costs of such coverage, based on 
                        consideration of the risks involved and 
                        accepted actuarial and rate making principles, 
                        anticipated administrative expenses, and loss 
                        and loss-adjustment expenses.
                  (B) Applicability.--This paragraph shall apply to any 
                program which, after January 1, 1998, commences 
                offering insurance or reinsurance coverage described in 
                subparagraph (A) or (B), respectively, of paragraph 
                (1), or effective 2 years after the date of enactment 
                for any existing State program described in section 8.
          (7) Other qualifications.--
                  (A) In general.--The program shall have been 
                certified (for the year for which the coverage is in 
                effect) by the Secretary as in compliance with 
                regulations that shall be issued under this paragraph 
                by the Secretary, in consultation with the National 
                Commission on Catastrophe Risks and Insurance Loss 
                Costs established under section 10. The regulations 
                shall establish criteria for State programs to qualify 
                to purchase reinsurance under this section, which are 
                in addition to the requirements under the other 
                paragraphs of this subsection.
                  (B) Contents.--The regulations issued under this 
                paragraph shall include requirements that--
                          (i) the State program have public members on 
                        its board of directors or have an advisory 
                        board with public members;
                          (ii) insurance coverage made available 
                        through the State program not supplant coverage 
                        that is otherwise reasonably available and 
                        affordable in the private insurance market;
                          (iii) the State program provide adequate 
                        insurance protection for the peril covered, 
                        which shall include a range of deductibles and 
                        premium costs that reflect the applicable risk 
                        to eligible properties;
                          (iv) the insurance protection provided by the 
                        State program is made available on a 
                        nondiscriminatory basis to all qualifying 
                        residents;
                          (v) the State, or the appropriate local 
                        governments within the State, have certified 
                        that new construction insured by the program 
                        complies with applicable building, fire, and 
                        safety codes;
                          (vi) the State, or appropriate local 
                        governments within the State, have in effect 
                        building, fire, and safety codes generally 
                        consistent with Federal Emergency Management 
                        Agency guidelines designed to reduce losses 
                        from the peril covered;
                          (vii) the State has taken actions to 
                        establish an insurance rate structure that 
                        takes into account measures to mitigate 
                        insurance losses; and
                          (viii) the State program complies with such 
                        other requirements that the Secretary considers 
                        necessary to carry out the purposes of this 
                        Act.
  (b) Terms of Contracts.--Each contract under this section for 
reinsurance coverage under this Act shall be subject to the following 
terms and conditions:
          (1) Maturity.--The term of the contract shall not exceed 1 
        year.
          (2) Payment condition.--The contract shall authorize claims 
        payments for eligible losses only to the eligible State program 
        purchasing the coverage.
          (3) Retained losses requirement.--The contract shall pay 
        eligible losses only if the total amount of insurance claims 
        for losses, which are covered by qualified lines, occur to 
        properties located within the State covered by the contract, 
        and result from a single event of a covered peril, exceeds the 
        amount of retained losses provided under the contract (pursuant 
        to section 8(a)) purchased by the eligible State program.
          (4) Multiple events.--The contract shall cover any eligible 
        losses from one or more covered events that may occur during 
        the term of the contract.
          (5) Timing of eligible losses.--Eligible losses under the 
        contract shall include only insurance claims for property 
        covered by qualified lines that are reported to the eligible 
        State program within the 3-year period beginning upon the event 
        or events for which payment under the contract is made.
          (6) Pricing.--
                  (A) Determination.--The cost of reinsurance coverage 
                under the contract shall be an amount established by 
                the Secretary as follows:
                          (i) Recommendations.--The Secretary shall 
                        take into consideration the recommendations of 
                        the Commission in establishing the cost, but 
                        the cost may not be less than the amount 
                        recommended by the Commission.
                          (ii) Fairness to taxpayers.--The cost shall 
                        be established at a level that is designed to 
                        return to the Federal Government fair 
                        compensation for the risks being borne by the 
                        people of the United States and that takes into 
                        consideration the developmental stage of 
                        empirical models of natural disasters and the 
                        capacity of private markets to absorb insured 
                        losses from natural disasters.
                          (iii) Self-sufficiency.--The rates for 
                        reinsurance coverage shall be established at a 
                        level that annually produces expected premiums 
                        which shall be sufficient to pay the annualized 
                        cost of all claims, loss adjustment expenses, 
                        and all administrative costs of reinsurance 
                        coverage offered under this section.
                  (B) Components.--The cost shall consist of the 
                following components:
                          (i) Risk-based price.--A risk-based price, 
                        which shall reflect the anticipated annualized 
                        payout of the contract according to the 
                        actuarial analysis and recommendations of the 
                        Commission.
                          (ii) Risk load.--A risk load in an amount 
                        that is not less than the risk-based price 
                        under clause (i).
                          (iii) Administrative costs.--A sum sufficient 
                        to provide for the operation of the Commission 
                        and the administrative expenses incurred by the 
                        Secretary in carrying out this Act.
          (7) Repayment terms.--The contract shall include a condition 
        that requires that, in the event that a covered purchaser 
        receives payments for qualifying claims that consist of amounts 
        derived from obligations issued under section 9(d), such 
        covered purchaser shall continue to purchase the reinsurance 
        coverage provided under this Act, in amounts that are at least 
        as great as those immediately before the Fund was credited with 
        amounts borrowed under section 9(d), until such borrowed 
        moneys, including interest, are repaid pursuant to section 
        9(d)(5)(B).
          (8) Information.--The contract shall contain a condition 
        providing that the Commission may require the State program 
        that is covered to submit to the Commission all information on 
        the State program relevant to the duties of the Commission, as 
        determined by the Secretary.
          (9) Exhaustion of coverage.--
                  (A) In general.--Each contract shall provide that, if 
                during the term of the contract the coverage under the 
                contract is exhausted because of payment for losses 
                from a covered event, the covered purchaser shall, 
                during the 15-day period beginning upon the covered 
                event that causes exhaustion of the coverage under the 
                original contract, have an option to make a single 
                purchase of similar coverage for the remaining term of 
                the contract under terms and conditions similar to the 
                original contract, but reflecting a new loss cost 
                estimate and at a cost prorated based upon the 
                remaining term.
                  (B) Discretion.--To facilitate making available 
                contracts pursuant to the exercise of options under 
                subparagraph (A), the Secretary may make--
                          (i) any estimates and determinations that may 
                        be necessary regarding whether coverage under a 
                        contract is exhausted and the amount of losses 
                        retained by a State program;
                          (ii) any estimates and assumptions necessary 
                        to establish the price, terms, and conditions 
                        of a contract provided pursuant to such an 
                        option; and
                          (iii) any subsequent adjustments to a 
                        contract provided pursuant to the exercise of 
                        such an option (including cancellation of the 
                        contract) to conform the price, terms, and 
                        conditions in accordance with findings by the 
                        Secretary regarding issues previously estimated 
                        and assumed by the Secretary pursuant to clause 
                        (ii).
          (10) Others.--The contract shall contain such other terms as 
        the Secretary considers necessary to carry out this Act and to 
        ensure the long-term financial integrity of the program under 
        this Act.
  (c) Price Gouging Protections.--Notwithstanding any other provision 
of this section, a State-operated program that otherwise meets the 
requirements of this section shall be eligible to purchase a contract 
under this section for reinsurance coverage made available under this 
Act only if the Secretary determines that there are in effect, in such 
State, laws or regulations sufficient to prohibit price gouging, during 
the term of such reinsurance coverage, in any disaster area located 
within the State.

SEC. 7. AUCTION OF CONTRACTS FOR REINSURANCE COVERAGE.

  (a) Auction Program Requirements.--The Secretary shall carry out a 
program to auction contracts for reinsurance coverage under this Act 
made available pursuant to section 3(a)(2), which shall comply with the 
following requirements:
          (1) Purchasers.--The auction program shall provide for 
        auctioning all contracts made available under this section to 
        private insurers and reinsurers, State insurance and 
        reinsurance programs, and other interested entities.
          (2) Regional auctions.--The auction program shall provide for 
        auctions on a regional basis. The Secretary shall divide the 
        States into not less than 6 regions for the purpose of holding 
        such regional auctions, which shall include separate regions 
        for all or part of the State of California and all or part of 
        the State of Florida. Auctions for each region shall be 
        conducted not less often than annually.
          (3) Reserve price.--In auctioning a contract under this 
        section for reinsurance coverage, the Secretary shall set a 
        reserve price as the lowest base price for that contract, based 
        upon the recommendations of the Commission. The reserve price 
        shall be determined on the basis of the following components:
                  (A) Risk-based price.--A risk-based price, which 
                shall reflect the anticipated annualized payout of the 
                contract according to the actuarial analysis and 
                recommendations of the Commission.
                  (B) Risk load.--A risk load in an amount that is not 
                less than the risk-based price under subparagraph (A).
                  (C) Administrative costs.--A sum sufficient to 
                provide for the operation of the Commission and the 
                administrative expenses incurred by the Secretary in 
                carrying out this section.
                  (D) Mitigation.--An adjustment that takes into 
                account any efforts that are being made to reduce 
                losses to property in the region in which the contract 
                is being sold.
          (4) Other requirements.--The Secretary may establish such 
        other requirements for the auction program as the Secretary 
        considers necessary to carry out this Act.
  (b) Contract Terms and Conditions.--Each contract for reinsurance 
coverage auctioned under the program under this section shall include 
the following terms and conditions:
          (1) Maturity.--The term of each such contract shall not 
        exceed 1 year.
          (2) Transferability.--The contract shall at all times be 
        fully transferable, assignable, and divisible.
          (3) Multiple events.--The contract shall contain the 
        provisions described in section 6(b)(4).
          (4) Threshold of coverage.--Each contract auctioned in a 
        region established under subsection (a)(2) shall provide that 
        the covered purchaser may receive a payment for losses covered 
        under the contract if, under a process specified in the 
        contract, the Secretary determines that the insurance industry 
        will, as a result of a single event of a covered peril, incur 
        losses within the coverage area for such region that are 
        covered by one or more lines of insurance under section 5 in an 
        aggregate amount, for such event, greater than the level of 
        retained losses specified in section 8.
          (5) Exhaustion of coverage.--Each contract shall contain the 
        provisions described in section 6(b)(9).
          (6) Others.--The contract shall contain such other terms as 
        the Secretary considers necessary to carry out this Act and to 
        ensure the long-term financial integrity of the program under 
        this Act.
  (c) Price Gouging Protections.--Notwithstanding any other provision 
of this section, a contract for reinsurance auctioned under this 
section shall provide reinsurance coverage only for losses incurred for 
property located in a State for which the Secretary of the Treasury has 
determined that there are in effect, in such State, laws or regulations 
sufficient to prohibit price gouging, during the term of such 
reinsurance coverage, in any disaster area located within the State.

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

  (a) Available Levels of Retained Losses.--In making reinsurance 
coverage available under this Act, the Secretary shall make available 
for purchase contracts for such coverage that require the sustainment 
of retained losses from a single event of a covered peril (as required 
under sections 6(b)(3) and 7(b)(4) for payment of eligible losses) in 
various amounts, as the Secretary determines appropriate and subject to 
the requirements under subsection (b).
  (b) Minimum Level of Retained Losses.--
          (1) Contracts for state programs.--Subject to paragraph (3) 
        and notwithstanding any other provision of this Act, a contract 
        for reinsurance coverage under section 6 for an eligible State 
        program that offers insurance or reinsurance coverage described 
        in subparagraph (A) or (B), respectively, of section 6(a)(1) 
        may not be made available or sold unless the contract requires 
        retained losses from a single event of a covered peril in the 
        following amount:
                  (A) In general.--The State program shall sustain an 
                amount of retained losses of not less than the greater 
                of--
                          (i) $2,000,000,000;
                          (ii) the claims-paying capacity of the 
                        eligible State program, as determined by the 
                        Secretary; and
                          (iii) an amount, determined by the Secretary 
                        in consultation with the Commission which is 
                        sufficient to cover eligible losses in the 
                        State during a 12-month period for all events 
                        having a likelihood of occurrence of once every 
                        100 years.
                  (B) Transition rule for existing state programs.--
                          (i) Claims-paying capacity.--Subject to 
                        clause (ii), in the case of any eligible State 
                        program that was offering insurance or 
                        reinsurance coverage on the date of the 
                        enactment of this Act and the claims-paying 
                        capacity of which is greater than 
                        $2,000,000,000 but less than an amount 
                        determined for the State under subparagraph 
                        (A)(iii), the minimum level of retained losses 
                        applicable under this paragraph shall be the 
                        claims-paying capacity of such State program.
                          (ii) Agreement.--Clause (i) shall apply to a 
                        State program only if the State program enters 
                        into a written agreement with the Secretary 
                        that shall provide a schedule for increasing 
                        the claims-paying capacity of the State program 
                        to the amount determined sufficient by the 
                        Secretary under subparagraph (A)(iii) of this 
                        subsection over a period not to exceed 5 years. 
                        The Secretary may extend the 5-year period for 
                        not more than 2 additional one-year periods if 
                        the Secretary determines that losses incurred 
                        by the State program as a result of covered 
                        perils create excessive hardship on the State 
                        program. The Secretary shall consult with the 
                        appropriate officials of the State program 
                        regarding the required schedule and any 
                        potential one-year extensions.
                  (C) Transition rule for new state programs.--
                          (i) 100-year event.--The Secretary may 
                        provide that, in the case of an eligible State 
                        program that, after January 1, 1998, commences 
                        offering insurance or reinsurance coverage, 
                        during the 5-year period beginning on the date 
                        that reinsurance coverage under section 6 is 
                        first made available, the minimum level of 
                        retained losses applicable under this paragraph 
                        shall be the amount determined for the State 
                        under subparagraph (A)(iii), except that such 
                        minimum level shall be adjusted annually as 
                        provided in clause (ii) of this subparagraph.
                          (ii) Annual adjustment.--Each annual 
                        adjustment under this clause shall increase the 
                        minimum level of retained losses applicable 
                        under this subparagraph to an eligible State 
                        program described in clause (i) in a manner 
                        such that--
                                  (I) during the course of such 5-year 
                                period, the applicable minimum level of 
                                retained losses approaches the minimum 
                                level that, under subparagraph (A), 
                                will apply to the eligible State 
                                program upon the expiration of such 
                                period; and
                                  (II) each such annual increase is a 
                                substantially similar amount, to the 
                                extent practicable.
                  (D) Reduction because of reduced claims-paying 
                capacity.--
                          (i) Authority.--Notwithstanding subparagraphs 
                        (A), (B), and (C) or the terms contained in a 
                        contract for reinsurance pursuant to such 
                        subparagraphs, if the Secretary determines that 
                        the claims-paying capacity of an eligible State 
                        program has been reduced because of payment for 
                        losses due to an event, the Secretary may 
                        reduce the minimum level of retained losses for 
                        the State commensurate with the current 
                        capacity of the State program, as determined by 
                        the Secretary, but in no case may such minimum 
                        level be less than $2,000,000,000.
                          (ii) Term of reduction.--If the minimum level 
                        of retained losses for an eligible State 
                        program is reduced pursuant to clause (i), upon 
                        the expiration of the 5-year period beginning 
                        upon such reduction the minimum level of 
                        retained losses applicable to such State 
                        program under a contract for reinsurance 
                        coverage under section 6 shall be increased to 
                        an amount not less than the amount applicable 
                        to such State program immediately before such 
                        reduction.
                  (E) Claims-paying capacity.--For purposes of this 
                paragraph, the claims-paying capacity of a State-
                operated insurance or reinsurance program under section 
                6(a)(1) shall be determined by the Secretary, in 
                consultation with the Commission, taking into 
                consideration retained losses to private insurers in 
                the State in an amount assigned by the State insurance 
                commissioner, the cash surplus of the program, and the 
                lines of credit, reinsurance, and other financing 
                mechanisms of the program established by law.
          (2) Auction contracts.--Subject to paragraph (3) and 
        notwithstanding any other provision of this Act, a contract for 
        reinsurance coverage may not be made available or sold under 
        section 7 through a regional auction unless the insurance 
        industry in the region for which the auction was conducted 
        sustains a cumulative amount of retained losses (in covered 
        lines resulting from covered perils) of not less than the 
        greater of--
                  (A) $2,000,000,000; and
                  (B) an amount, determined by the Secretary in 
                consultation with the Commission, which is sufficient 
                to cover eligible losses in the region during a 12-
                month period for all events having a likelihood of 
                occurrence of once every 100 years.
          (3) Annual adjustment.--The Secretary may annually raise the 
        minimum level of retained losses established under paragraph 
        (1) for an eligible State program or under paragraph (2) for a 
        region to reflect, as determined by the Secretary--
                  (A) in the case of an eligible State program, changes 
                to the claims-paying capacity of the program;
                  (B) changes in the capacity of the private insurance 
                and reinsurance market;
                  (C) increases in the market value of properties; or
                  (D) such other situations as the Secretary considers 
                appropriate.
        In making any determination under this paragraph in the minimum 
        level of retained losses, the Secretary shall establish such 
        level at an amount such that the program under this Act for 
        making reinsurance coverage available does not displace or 
        compete with the private insurance or reinsurance markets or 
        capital markets, as determined by the Secretary.
          (4) Optional annual inflationary adjustment.--The Secretary 
        may, on an annual basis, raise the minimum level of retained 
        losses established under paragraph (1) for each eligible State 
        program and under paragraph (2) for each region to reflect the 
        annual rate of inflation. Any such raise shall be made in 
        accordance with an inflation index that the Secretary 
        determines to be appropriate. The first such raise may be made 
        one year after contracts for reinsurance coverage under this 
        Act are first made available for purchase.
  (c) Maximum Federal Liability.--
          (1) In general.--Notwithstanding any other provision of law, 
        the maximum amount paid for all events in any single year by 
        the Secretary pursuant to claims under all contracts for 
        reinsurance coverage under this Act shall not exceed the 
        applicable maximum amount for such year determined under 
        paragraph (2). If, in any single year, claims under existing 
        contracts for reinsurance coverage exceed the applicable 
        maximum amount, each claimant shall receive a prorated portion 
        of the amount available for payment of claims.
          (2) Applicable maximum amount.--For purposes of paragraph 
        (1), the applicable maximum amount shall be--
                  (A) for any year not referred to in subparagraph (B), 
                $25,000,000,000, except that the Secretary shall 
                annually adjust such amount (as it may have been 
                previously adjusted) to provide for inflation in 
                accordance with an inflation index that the Secretary 
                determines to be appropriate; or
                  (B) for any year during the 4-year period beginning 
                on the date that contracts for reinsurance coverage 
                under this Act are first made available for purchase, 
                the dollar amount that the Secretary shall establish 
                and annually revise, which may not in any event exceed 
                $25,000,000,000.
  (d) Limitation on Percentage of Risk in Excess of Retained Losses.--
          (1) In general.--The Secretary may not make available for 
        purchase contracts for reinsurance coverage under this Act that 
        represent more than 50 percent of the risk of insured losses in 
        excess of retained losses--
                  (A) in the case of a contract under section 6 for an 
                eligible State program, for such State; and
                  (B) in the case of a contract made available through 
                a regional auction under section 7, for such region.
          (2) Payout.--For purposes of this subsection, the amount of 
        payout from a reinsurance contract shall be the amount of 
        eligible losses multiplied by the percentage in effect at the 
        time under paragraph (1).

SEC. 9. DISASTER REINSURANCE FUND.

  (a) Establishment.--There is established within the Treasury of the 
United States a fund to be known as the Disaster 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 Act;
          (2) any amounts borrowed under subsection (d);
          (3) any amounts earned on investments of the Fund pursuant to 
        subsection (e); and
          (4) such other amounts as may be credited to the Fund.
  (c) Uses.--Amounts in the Fund may be used only to the extent 
approved in appropriation Acts and only for the following purposes:
          (1) Contract payments.--For payments to covered purchasers 
        under contracts for reinsurance coverage for eligible losses 
        under such contracts.
          (2) Commission costs.--To pay for the operating costs of the 
        Commission.
          (3) Administrative expenses.--To pay for the administrative 
        expenses incurred by the Secretary in carrying out the 
        reinsurance program under this Act.
          (4) Termination.--Upon termination under section 12, as 
        provided in such section.
  (d) Borrowing.--
          (1) Authority.--To the extent that the amounts in the Fund 
        are insufficient to pay claims and expenses under subsection 
        (c), the Secretary may issue such obligations of the Fund as 
        may be necessary to cover the insufficiency and shall purchase 
        any such obligations issued.
          (2) Public debt transaction.--For the purpose of purchasing 
        any such obligations, the Secretary may use as a public debt 
        transaction the proceeds from the sale of any securities issued 
        under chapter 31 of title 31, United States Code, and the 
        purposes for which securities are issued under such chapter are 
        hereby extended to include any purchase by the Secretary of 
        such obligations under this subsection.
          (3) Characteristics of obligations.--Obligations issued under 
        this subsection shall be in such forms and denominations, bear 
        such maturities, bear interest at such rate, and be subject to 
        such other terms and conditions, as the Secretary shall 
        determine.
          (4) Treatment.--All redemptions, purchases, and sales by the 
        Secretary of obligations under this subsection shall be treated 
        as public debt transactions of the United States.
          (5) Conditions.--The following conditions shall apply to any 
        obligations issued under this subsection:
                  (A) The Secretary may issue such obligations only to 
                such extent and in such amounts as are provided in 
                appropriation Acts.
                  (B) Any obligations issued under this subsection 
                shall be repaid, including interest, from the Fund and 
                shall be recouped from premiums charged for reinsurance 
                coverage provided under this Act.
  (e) Investment.--If the Secretary determines that the amounts in the 
Fund are in excess of current needs, the Secretary may invest such 
amounts as the Secretary considers advisable in obligations issued or 
guaranteed by the United States.
  (f) Prohibition of Federal Funds.--Except for amounts made available 
pursuant to subsection (d) and section 10(h), no Federal funds shall be 
authorized or appropriated for the Fund or for carrying out the 
reinsurance program under this Act.

SEC. 10. NATIONAL COMMISSION ON CATASTROPHE RISKS AND INSURANCE LOSS 
                    COSTS.

  (a) Establishment.--The Secretary shall establish a commission to be 
known as the National Commission on Catastrophe Risks and Insurance 
Loss Costs.
  (b) Duties.--The Commission shall meet for the sole purpose of 
advising the Secretary regarding the estimated loss costs associated 
with the contracts for reinsurance coverage available under this Act 
and carrying out the functions specified in this Act.
  (c) Members.--The Commission shall consist of not more than 5 
members, who shall be appointed by the Secretary and shall be broadly 
representative of the public interest. Members shall have no personal, 
professional, or financial interest at stake in the deliberations of 
the Commission. The membership of the Commission shall at all times 
include at least 1 representative of a nationally recognized consumer 
organization.
  (d) Treatment of Non-Federal Members.--Each member of the Commission 
who is not otherwise employed by the Federal Government shall be 
considered a special Government employee for purposes of sections 202 
and 208 of title 18, United States Code.
  (e) Experts and Consultants.--The Commission may procure temporary 
and intermittent services under section 3109(b) of title 5, United 
States Code, but at a rates not in excess of the daily equivalent of 
the annual rate of basic pay payable for level V of the Executive 
Schedule, for each day during which the individual procured is 
performing such services for the Commission.
  (f) Compensation.--Each member of the Commission who is not an 
officer or employee of the Federal Government shall be compensated at a 
rate of basic pay payable for level V of the Executive Schedule, for 
each day (including travel time) during which such member is engaged in 
the performance of the duties of the Commission. All members of the 
Commission who are officers or employees of the United States shall 
serve without compensation in addition to that received for their 
services as officers or employees of the United States.
  (g) Obtaining Data.--The Commission and the Secretary may solicit 
loss exposure data and such other information either deems necessary to 
carry out its responsibilities from governmental agencies and bodies 
and organizations that act asstatistical agents for the insurance 
industry. The Commission and the Secretary shall take such actions as 
are necessary to ensure that information that either deems is 
confidential or proprietary is disclosed only to authorized individuals 
working for the Commission or the Secretary. No company which refuses 
to provide information requested by the Commission or the Secretary may 
participate in the program for reinsurance coverage authorized under 
this Act, nor may any State participate if any governmental agency 
within that State has refused to provide information requested by the 
Commission or the Secretary.
  (h) Funding.--
          (1) Authorization of appropriations.--There are authorized to 
        be appropriated--
                  (A) $1,000,000 for fiscal year 1999 for the initial 
                expenses in establishing the Commission and the initial 
                activities of the Commission that cannot timely be 
                covered by amounts obtained pursuant to sections 
                6(b)(6)(B)(iii) and 7(a)(4)(C), as determined by the 
                Secretary; and
                  (B) such additional sums as may be necessary to carry 
                out subsequent activities of the Commission.
          (2) Offset.--The Secretary shall provide, to the maximum 
        extent practicable, that an amount equal to any amount 
        appropriated under paragraph (1) is obtained from purchasers of 
        reinsurance coverage under this Act and deposited in the Fund 
        established under section 9. Such amounts shall be obtained by 
        inclusion of a provision for the Commission's expenses 
        incorporated into the pricing of the contracts for such 
        reinsurance coverage, pursuant to sections 6(b)(6)(B)(iii) and 
        7(a)(4)(C).
  (i) Termination.--The Commission shall terminate upon the effective 
date of the repeal under section 12(c).

SEC. 11. DEFINITIONS.

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

SEC. 12. TERMINATION.

  (a) In General.--Except as provided in subsection (b), the Secretary 
may not provide any reinsurance coverage under this Act covering any 
period after the expiration of the 10-year period beginning on the date 
of the enactment of this Act.
  (b) Extension.--If upon the expiration of the period under subsection 
(a) the Secretary, in consultation with the Commission, determines that 
continuation of the program for reinsurance coverage under this Act is 
necessary to carry out the purpose of this Act under section 3(b) 
because of insufficient growth of capacity in the private homeowners' 
insurance market, the Secretary shall continue to provide reinsurance 
coverage under this Act until the expiration of the 5-year period 
beginning upon the expiration of the period under subsection (a).
  (c) Repeal.--Effective upon the date that reinsurance coverage under 
this Act is no longer available or in force pursuant to subsection (a) 
or (b), this title (except for this section) is repealed.
  (d) Deficit Reduction.--The Secretary shall cover into the General 
Fund of the Treasury any amounts remaining in the Fund under section 9 
upon the repeal of this title.

SEC. 13. ANNUAL STUDY OF COST AND AVAILABILITY OF DISASTER INSURANCE 
                    AND PROGRAM NEED.

  (a) In General.--The Secretary shall, on an annual basis, conduct a 
study and submit to the Congress a public report on the cost and 
availability of homeowners' insurance for losses resulting from 
catastrophic natural disasters covered by the reinsurance program under 
this Act.
  (b) Contents.--Each annual study under this section shall determine 
and identify, on an aggregate basis--
          (1) for each State or region, the capacity of the private 
        homeowners' insurance market with respect to coverage for 
        losses from catastrophic natural disasters;
          (2) for each State or region, the percentage of homeowners 
        who have such coverage, the disasters covered, and the average 
        cost of such coverage;
          (3) for each State or region, the progress that private 
        reinsurers and capital markets have made in providing 
        reinsurance for such homeowners' insurance;
          (4) for each State or region, the effects of the Federal 
        reinsurance program under this Act on the availability and 
        affordability of such insurance; and
          (5) the appropriate time for termination of the Federal 
        reinsurance program under this Act.
  (c) Timing.--Each annual report under this section shall be submitted 
not later than March 30 of the year after the year for which the study 
was conducted.
  (d) Commencement of Reporting Requirement.--The Secretary shall first 
submit an annual report under this section 2 years after the date of 
the enactment of this Act.

                     EXPLANATION OF THE LEGISLATION

    H.R. 219, the ``Homeowners' Insurance Availability Act of 
1998'' creates a voluntary temporary Federal complement to 
efforts by states and the private market to make catastrophic 
insurance for homeowners living in disaster-prone regions of 
the country more available and affordable.

                         FINDINGS AND PURPOSES

    The availability of homeowners' insurance can no longer be 
taken for granted. Major catastrophes in recent years, 
including Hurricane Andrew (1992), Hurricane Iniki (1992) and 
the Northridge Earthquake (1994) have led to a shortage of 
insurance coverage in many risk-prone areas.
    Testimony before the Committee in the 105th Congress has 
shown evidence of such availability problems in coastal 
regions, particularly North Carolina, Florida, Texas and New 
Jersey, but also in other areas prone to hurricane losses. 
Similarly, the availability and scope of coverage for damage 
from earthquakes is a significant problem in California, 
Missouri and other seismic-prone states. Evidence presented to 
the Committee indicates that such availability problems at the 
consumer level have been worsening.
    According to a 1997 study undertaken by the Independent 
Insurance Agents of America (IIAA), for example, 96% of the 
agents surveyed indicated that it was more difficult to 
underwrite homeowners' insurance coverage in disaster prone 
regions during the last five years. This same survey indicated 
that the lack of adequate reinsurance \1\ was the primary 
reason insurance companies were unwilling to continue expanding 
coverage in risk-prone areas. As further evidence, U.S. RE 
Corporation, one of the nation's leading insurance 
intermediaries, has publicly stated that the total supply of 
available reinsurance in any single region of the United States 
is approximately $7 billion for both residential and commercial 
losses, a figure which is less than 10% of the potential loss 
which might occur from a worst-case natural event.
---------------------------------------------------------------------------
    \1\ Reinsurance is a risk transfer mechanism that traditionally has 
come in the form of insurance for insurance companies. In the property 
casualty business, in particular, the more risk an insurance company 
accumulates, the more capital it needs and the more volatile its 
earnings become, and the more the need to transfer risk. For example, 
in a typical excess of loss reinsurance contract, the reinsurer agrees 
to indemnify an insurance company for all or part of losses in excess 
of a fixed dollar amount called an attachment point. Once the 
attachment point, or trigger, is reached, losses would be covered by 
reinsurance purchased by the primary insurance company.
---------------------------------------------------------------------------
    In California, although the state earthquake authority 
recently secured the largest private reinsurance contract in 
history ($1.8 billion), the additional coverage will protect 
less than 10% of potential losses in a major earthquake, while 
costing the state program 50 cents out of every dollar 
collected from California homeowners. In the event a natural 
disaster exceeds the capacity of a particular state's insurance 
program, homeowners would receive only partial claims for 
losses, bankrupting the state insurance fund, damaging state 
real estate and insurance industries, and ultimately 
endangering the health of local economies.
    Should the recent trend of larger losses from natural 
disaster continue in the future, together with reduced 
insurance capacity in the private marketplace, the consequences 
could be serious for the Federal government. Since 1983, the 
Federal government has spent over $75 billion for disaster 
assistance. Forecasters who have testified before the Committee 
predict that the East and Gulf Coasts are entering what is 
likely to be an even more damaging period of frequent storms. 
Considering that 75% of the U.S. population will be living 
within 100 miles of a U.S. coastline by the year 2010, 
according to Commerce Department estimates, these events could 
cause even further erosion in the insurance safety net.
    In several States, including Florida, California and 
Hawaii, government has intervened to prevent a near total 
collapse in private insurance markets. Florida created the 
Florida Catastrophe Reinsurance Fund in 1993, followed soon 
thereafter by the Hawaii Hurricane Relief Fund (1994) and the 
California Earthquake Authority (1996). These programs 
stabilized local insurance markets and provided a source of 
coverage for homeowners who could otherwise not obtain it. All 
are capable of paying loss claims from events of medium 
severity, but cannot be reasonably expected to handle worst 
case events that are likely to occur infrequently.
    Many other higher risk states, such as Texas, Louisiana, 
North Carolina, Virginia, New Jersey, New York, Maryland, 
Delaware, Rhode Island, Connecticut and Massachusetts, as well 
as Tennessee, Missouri, Arkansas, Illinois, Indiana, Washington 
and Oregon do not have state insurance programs. However, a 
worst-case catastrophe would likely cause considerable 
insolvencies among private insurers. No matter where a worst-
case disaster may occur, it is reasonable to expect that under-
protected states and unprotected homeowners will look to the 
Federal government for the sort of emergency supplemental 
relief that history has shown they are likely to receive.

                          LEGISLATIVE HISTORY

    Early in the 104th Congress, in an effort to address the 
rising Federal costs of natural disasters and the growing lack 
of available homeowners' insurance in vulnerable areas, the 
late Representative Bill Emerson (R-MO), Senator Ted Stevens 
(R-AL), Representative Norman Mineta (D-CA), Senator Daniel 
Inouye (D-HI) and more than 220 Members of Congress sponsored 
comprehensive natural disaster protection legislation. That 
legislation ultimately did not proceed to markup, in part 
because of the bill's all-encompassing approach and the 
perception that the legislation would create many disincentives 
for the insurance industry to properly assume risks in a 
disciplined fashioned at the right price.
    On the first day of the 105th Congress, Housing 
Subcommittee Chairman Rick Lazio joined with Representatives 
Bill McCollum (R-FL) and Vic Fazio (D-CA) to introduce H.R. 
219, the ``Homeowners' Insurance Availability Act of 1997.'' 
The legislation was originally designed to complement only 
state efforts to address rising natural disaster costs and the 
growing lack of available homeowners' insurance with minimal 
Federal involvement to encourage the resuscitation of the 
industry. The Housing Subcommittee held hearings on the 
legislation on June 25, 1997, and August 25, 1997. On February 
4, 1998, H.R. 219 was marked up and passed the Housing 
Subcommittee by a vote of 16 to 6. The full Committee heard 
testimony on the legislation on April 23, 1998, including 
testimony from U.S. Department of Treasury Deputy Secretary 
Lawrence Summers.

                 I. Background and Need for Legislation

    Extensive market evidence and Congressional testimony 
during the 1990s have shown that there is a significant lack of 
available homeowners' catastrophe insurance in disaster-prone 
areas across the country.
    Following the Northridge earthquake in 1994, 95% of the 
homeowners' insurance market in the state was not providing new 
coverage according to the California Insurance Department. The 
Hawaii and Florida markets were similarly affected following 
catastrophes in 1992. Besides California, Hawaii, and Florida, 
homeowners' insurance availability continues to be a problem in 
the coastal areas of Texas, Louisiana, North Carolina, 
Virginia, New Jersey, Maryland, Delaware, New York, Rhode 
Island, Connecticut and Massachusetts. Homeowners' insurance is 
becoming extremely difficult to obtain in the New Madrid 
earthquake region (Tennessee, Missouri, Arkansas, Illinois, 
Indiana) and the Pacific Northwest. As evidence, applications 
to state FAIR (Fair Access Insurance Requirements) plans and 
beach plans (so-called markets of last resort for homeowners' 
insurance which generally provide less coverage at a greater 
price) have increased dramatically over the last five years 
(California +309%, Louisiana +741%, Massachusetts +66%, New 
York +31%, Mississippi +75%, Florida +533%, South Carolina 
+213%).
    According to a December 1996 study of states by Insurance 
Services Office (ISO), a non-profit corporation that makes 
available advisory rating, statistical, actuarial and related 
services to U.S. property/casualty insurers, in the last ten 
years, the number of insurers writing homeowners' insurance has 
dropped by 31% in Florida, by 29% in Texas, and by 23% in 
California. That same study concluded that ``[u]ntil society * 
* * creates the necessary financial mechanism, homeowners' 
insurers will remain in a precarious situation, and insurance 
availability may remain a problem in catastrophe-prone areas.''
    During testimony before the House Subcommittee in 1997, 
Gregory Butler, CEO of the California Earthquake Authority 
stated ``[following the Northridge Earthquake] insurers * * * 
simply walked away from the market * * * it was nearly 
impossible to find insurance for a new home buyer.'' At that 
same hearing, Daniel Sumner, General Counsel of the Florida 
Department of Insurance testified that ``[even with the 
creation of the state fund] there are areas of the state of 
Florida where the private insurance capacity is such that there 
is simply not adequate private insurance to cover those who are 
in need of insurance * * * the shock of [Hurricane Andrew] 
claims and risk of further claims * * * created an environment 
where massive cancellations of homeowners' policies and retreat 
from the state by insurance companies were at hand.''
    Dr. Robert Klein, Director for the Center for Risk 
Management at Georgia State University testified before the 
Housing Subcommittee that ``reinsurers do not have the 
financial resources to cover losses from a mega-catastrophe. 
Catastrophe reinsurance is difficult and expensive to obtain.'' 
In that same hearing, Jerry Thomas, Chairman of the Quaker City 
BanCorp, California stated that ``[t]he flight of property and 
casualty insurers and the limited and expensive coverage 
offered by the [state program] leave depository institutions 
which lend in seismically active areas exposed to potentially 
devastating losses.''
    Steven Bupp, President of Condominium Venture, Inc., 
Maryland stated in testimony before the House Subcommittee that 
``[following the disasters of the early 1990s] insurance 
companies went bankrupt, policies were canceled, the 
availability of new coverage vanished * * * and existing 
coverage shrank * * * locating and affording adequate insurance 
coverage remains a significant challenge * * * availability is 
scarce or virtually nonexistent in some areas.'' In that same 
hearing, James R. Klagholz, Secretary-Treasure of C.N. Sterling 
Associates, New Jersey stated that ``there are very big 
problems * * * in the insurance market and * * * they are 
growing worse * * * insurance company after insurance company 
[has] withdrawn from the market * * * there are few if any, 
insurance companies that will write * * * coverage [on the New 
Jersey shore].''
    During testimony before the Housing Subcommittee at a field 
hearing in Miami, Florida on the 5 year anniversary of 
Hurricane Andrew, Alex Soto, President of Pennekamp and Soto 
Insurance Agency testified that ``[f]ive years after Hurricane 
Andrew, the Florida insurance market still struggles as though 
the wind never stopped blowing * * * Most companies are not 
only refusing new business, they are still actively non-
renewing as many customers as the law will allow. This is not a 
trend which is slowly reversing. It has been a full-scale 
retreat that started immediately after Hurricane Andrew and 
continues unabated to this day.'' At that same hearing, Bill 
Nelson, Insurance Commissioner of the State of Florida 
testified that ``[a]fter [Hurricane] Andrew ripped through the 
state, Florida's property insurance market collapsed * * * for 
all our progress * * * it is not enough * * * It remains 
difficult to find additional or new private-market coverage in 
South Florida.'' Also testifying at that hearing Stan Bainter, 
Representative of the Florida State House stated that 
``[t]oday, the voluntary, private sector homeowners' insurance 
market does not work well anywhere in Florida, and does not 
work at all in some parts of Florida.'' Dr. Jack Nicholson, CEO 
of the Florida Catastrophic Fund also testified that 
``[following Hurricane Andrew] insurers and reinsurers began to 
reduce their exposure in Florida. The result for Florida were 
that thousands of Floridians found themselves unable to find 
coverage.''
    In 1998, in testimony before the full Committee, Deputy 
Treasury Secretary Lawrence Summers stated that there is an 
``urgent need for moving forward on a timely basis [with 
Federal disaster reinsurance legislation, and that] we see 
great promise in [H.R. 219] as a means of addressing many of 
the problems related to the availability and price of insurance 
and reinsurance for disaster risks.'' He went on to note that 
the capital market solutions to natural disaster exposure are 
``in a relatively early stage of development, [and] clearly, a 
serious problem remains in the interim.'' He concluded that 
``[p]rogress on this issue has been too long in coming [and 
that] we all share a clear recognition of the urgent need to 
move forward on a timely basis.''
    Also testifying before the full Committee, Babette 
Heimbuch, President and CEO of the First Federal Bank of 
California, stated that depository institutions located in 
disaster-prone areas ``face the potential of crippling losses 
should the traditional safety net of private homeowners' 
insurance fail [and] that system is indeed failing.'' She noted 
that ``it is not an exaggeration to say that the greatest risk 
to the funds protecting America's financial institutions is not 
a financial collapse but a large-scale natural disaster [and] 
if a major earthquake and a major hurricane were to occur in 
the same year the total gross real estate losses for depository 
institutions could force many lenders across the nation into 
insolvency.''
    Roger Joslin, Chairman of the Board of the State Farm Fire 
and Casualty Company, the largest writer of homeowners' 
insurance in the United States also testified before the 
Committee that ``insured losses from major natural catastrophes 
in several regions of the country * * * could reach as high as 
$75 billion to $100 billion,'' and that ``[e]vents of this 
magnitude far exceed the claims paying capacity of most private 
insurers and all existing state funds.''
    Also testifying before the Committee, Robert W. Pike, 
Senior Vice President, Secretary and General Counsel of the 
Allstate Insurance Company, stated that although state-operated 
insurance programs ``have sufficient capacity to cover the 
majority of catastrophes, [they] could not cover the losses 
from worst-case disaster * * * if [Hurricane Andrew] had hit 
just 50 miles north in Miami, the cost of that hurricane, it is 
estimated, would have exceeded $50 billion in insuredlosses.'' 
He concluded that ``Allstate believes that H.R. 219 will make state 
natural disaster plans much more stable, thereby increasing the 
likelihood of sustaining a viable insurance market after a substantial 
catastrophe.''

                        II. Purpose and Summary

A. Overview

    H.R. 219, the ``Homeowners' Insurance Availability Act of 
1998'' requires the Department of the Treasury to offer 
voluntary, single-year, single peril (hurricane, earthquake or 
volcano), multiple event Federal reinsurance contracts for (1) 
direct sale to eligible state-operated insurance programs 
(existing and future); and (2) auction by region to private 
market participants as well as state-operated insurance 
programs for residential loss coverage in the event of a 
natural disaster. In the event Federal reinsurance under a 
particular contract is exhausted due to payment for event 
losses, the purchaser has a single opportunity to purchase 
additional coverage within 15 days of the event which exhausts 
the original contract.
    Reinsurance coverage offered by the federal government 
would cover only a percentage of losses above a deductible, or 
trigger, set by state or region by the Secretary of the 
Treasury in consultation with the National Commission on 
Catastrophe Risks and Insurance Loss Costs established in the 
legislation. It is intended that these trigger levels are the 
minimum required levels and that Treasury may set the trigger 
as high as necessary to achieve program goals.
    The trigger levels are as follows:

------------------------------------------------------------------------
              State programs                      Regional auctions     
------------------------------------------------------------------------
Triggers are the greater of:                Triggers are the greater of:
    1. $2 billion in residential losses,      1. $2 billion in          
     or                                        residential losses, or   
    2. State program claims-paying            2. An amount sufficient to
     capacity, or                              cover residential losses 
    3. An amount sufficient to cover           by region resulting from 
     residential losses resulting from an      an event that has a      
     event that has a likelihood of            likelihood of occurring  
     occurring once every 100 years.           once every 100 years.    
------------------------------------------------------------------------

    The trigger amount for State insurance programs in most 
instances will be the one-in-one hundred-year event figure. For 
existing State programs with claims paying capacity below this 
level, the Secretary would have authority to set interim 
trigger levels over a five year period to permit the program to 
achieve the required level of claims-paying capacity. If 
necessary, the Secretary could provide two additional one-year 
extensions should the State sustain significant unforeseen 
losses from covered claims.
    For state programs, Treasury may reduce the required 
minimum deductible if a state's claims-paying capacity has been 
reduced from a natural disaster. Such reduction is allowed only 
for a period of up to five years, after which the state program 
must return to its original deductible level. Additionally, the 
Secretary has the discretion, in consultation with the National 
Commission on Catastrophic Risks and Insurance Loss Costs, to 
set trigger levels below $2 billion for new state programs, for 
those states that have a one in 100 year event that is less 
than $2 billion in residential losses and at a level sufficient 
to cover eligible losses. However, such state programs are 
required to transition to a level at least as high as $2 
billion over a period of five years.
    In establishing program trigger levels, the Treasury is 
prohibited from offering Federal coverage at levels that would 
compete or displace the private insurance or reinsurance 
markets.
    Once the trigger level has been exceeded (i.e., a state 
program or the insurance industry by region pays out losses 
equal to the deductible level), Federal reinsurance pays 50 
cents for every dollar of eligible losses above the deductible 
level up to $25 billion, depending on the amount of Federal 
coverage purchased. In the event there are total eligible 
claims exceeding $25 billion in any one year, claims are 
prorated. participating state programs and private market 
entities pay premiums established by the Secretary based upon 
the recommendations of the Commission of at least twice the 
actuarial risk of the coverage. Auction participants 
competitively bid for contracts above the minimum premium 
established by Treasury that includes the above minimum 
requirement as well as a component taking into account 
mitigation efforts in the particular region. Such premiums are 
designed to provide for program self-sufficiency.
    H.R. 219 imposes reasonable consumer safeguards as a 
condition for State participation in the federal reinsurance 
program. It instructs the Secretary to develop regulations to 
insure that state programs have public members on their board 
of directors. Insurance policies covering the peril insured by 
the program must be generally unavailable elsewhere in the 
private market. Insurance policies available from state 
programs should be reasonably available and affordable to 
consumers and made available on a nondiscriminatory basis. 
States and localities covered by a state program must implement 
mitigation measures, such as effective building fire and safety 
codes, for all new construction insured by the program and 
insurance policies must be priced to reflect these mitigation 
efforts.
    Two years after enactment and annually thereafter 
throughout the life of the program, Treasury must conduct and 
submit to Congress a study on the cost and availability of 
catastrophic homeowners' insurance, including an identification 
of an appropriate time for program termination.
    The program sunsets after 10 years unless Treasury 
determines there has been insufficient growth in private market 
capacity. In such a case, Treasury may extend the program for 
up to five additional years. Any revenue remaining in the 
program is transferred into the General Fund of the Treasury 
for purposes of deficit reduction.

B. Minimal Federal complement to State and private sector efforts

    Paramount among the Committee's concerns has been 
developing a solution to a very real and urgent need for 
available and affordable catastrophic homeowners' insurance 
without excessive or unnecessary Federal involvement. The 
Committee believes such balance has been achieved in H.R. 219 
by establishing prohibitions against offering Federal coverage 
at levels that would compete or displace the private sector, by 
requiring that program participants either self-insure or 
purchase private reinsurance for an amount equal to the total 
of Federal coverage purchased, and by terminating the Federal 
program after 10 years unless the Secretary determines that 
there has been insufficient growth in private market capacity, 
in which case, the program may be extended for a period of up 
to five years.
    Section 3(c) of the Committee bill provides that the 
contracts of Federal reinsurance provided under the bill for 
either state programs under Section 6, or as auctioned by 
Treasury under Section 7, not displace or compete with 
insurance, reinsurance or capital markets, but instead provide 
catastrophe capacity above the levels the private sector 
already provides.
    Consistent with this provision, Section 8 of the Committee 
bill provides that the stated retained losses at which the 
Federal reinsurance attaches or triggers are minimums. The 
Committee expects that the Secretary would first determine the 
private market's capacity to retain risk and then set the 
attachment points above those minimums, consistent with the 
analysis of private market capacity.
    Since the capacity of insurers, reinsurers and capital 
markets to absorb natural catastrophe losses fluctuates with 
market conditions, the contracts of reinsurance are to be 
entered into on an annual basis. Section 8(b)(2) provides that 
the Secretary shall adjust the attachment points based on a 
number of criteria, including an assessment of capacity to 
retain catastrophe risk in the private insurance, reinsurance 
and capital markets or in the state programs, and the 
requirement that the Federal program not displace or compete 
with those markets.
    In Section 8(d) of the Committee bill, Treasury is 
restricted from offering Federal coverage for more than 50% of 
the risk of insured losses in excess of minimum retained 
losses. More simply, the Federal reinsurance will pay only 50 
cents for every dollar in eligible losses. The Committee agreed 
to this limitation at the request of the Administration and in 
recognition of the need to avoid discouraging the continued 
development of private market capacity to absorb catastrophic 
losses. The Committee believes that the risk-sharing/co-payment 
requirement will, in fact, encourage and accelerate the 
development of private market financing mechanisms.
    Additionally, the Committee approved an amendment to sunset 
the Federal program after 10 years unless Treasury determines 
there has been insufficient growth in private market capacity. 
In such a case, Treasury may extend the program for up to five 
additional years. The Committee included this provision to 
clearly establish that the most effective and efficient 
mechanisms for protecting against catastrophic loss ultimately 
reside in the private market. It is intended that the temporary 
Federal presence envisioned in H.R. 219 simply provide for 
continuity and relative calm through the present private market 
disruption, and in no way replace or compete with the private 
sector.

C. Protections against price gouging

    The Committee recognizes that one reason for the high cost 
of natural catastrophes is due to temporary increases in labor 
and materials because of high demand. While some increases are 
a normal market function, unreasonable increases can lead to 
price gouging and other behaviors which are not in the public 
interest. Therefore, in an effort to reduce price gouging, the 
Committee directs the Treasury to offer Federal reinsurance 
contracts only in states that have laws or regulations 
sufficient to prohibit these practices.

D. States with less risk exposure

    The Committee would note that while the legislation 
requires Treasury to conduct no less than six regional auctions 
of Federal reinsurance contracts across the country, the 
Committee does not intend to require that each and every state 
be included in one region or another. In particular, for those 
few states in the northern Great Plains, including Nebraska, 
Montana, North Dakota and South Dakota, among others, that 
suffer from relatively small risk of hurricane, earthquake or 
volcano exposure, the Committee would not expect that Treasury 
would determine such states necessarily be included in the 
regional auction component of the legislation.
    During Committee markup, the Committee approved an 
amendment providing the Secretary discretion to allow new 
state-operated insurance programs five years to reach a minimum 
trigger level of $2 billion if, according to the National 
Commission on Catastrophe Risks and Insurance Loss Costs, an 
event likely to occur in the state once every 100 years causes 
losses which are less than $2 billion. It should be noted that 
in considering such a reduction in minimum triggers as set 
forth in the legislation, the Secretary should not displace or 
otherwise compete with reinsurance coverage available in the 
private reinsurance market. The purpose of the amendment is to 
assure that all states are treated fairly and equitably by the 
federal program, considering differences in the frequency and 
severity of natural catastrophes among states as well as the 
relative size and financial capacity of the local insurance and 
reinsurance markets.

E. Regional auctions to private market participants

    An excess-of-loss contract is a layer of reinsurance at a 
defined level. The purpose behind the excess-of-loss is to 
stimulate the private market. In no way should it supplant 
coverage that is readily available through the private sector. 
By offering high levelcoverage, the Federal contracts can free 
up capital currently dedicated to high level coverage so that it may be 
used to fill in a spotty market at lower levels of coverage. 
Furthermore, the capital markets, although immature now, look 
promising. In this regard, the Committee designed H.R. 219 to provide a 
temporary complement to those growing private market mechanisms to 
encourage continued development.
    Despite the several different versions of excess-of-loss 
legislation since the Administration's policy paper, the base 
philosophy behind the excess-of-loss has remained the same. It 
remains intact in H.R. 219 as reported by the Committee. 
Essentially, Treasury would conduct an auction of a limited 
number of contracts. The contracts will be available to a given 
set of purchasers. The Committee believes that the coverage 
needed in an excess-of-loss contract should begin at the 
greater of $2 billion or what is determined to be a ``one in 
one hundred year event'' by the Commission. However, the 
Committee has given Treasury the authority to increase the 
``trigger'' based on the dynamics of the private market. 
Therefore, the trigger may go higher than either $2 billion or 
the 1-in-100 event, if necessary, to avoid encroaching on the 
private market.
    Under the bill, the Treasury shall create at least six 
regions in which Federal reinsurance will be auctioned. The 
Committee believes that by dividing the country into regions, 
the auctions will attract more bidders, especially among the 
smaller, regionally-based underwriters, and be more likely to 
provide uniform benefits to all parts of the Nation. All or 
part of Florida would exclusively comprise at least one region 
and all or part of California would comprise another. The size 
of potential hurricane or earthquake losses in these two areas 
is so large that including them in any other region would 
distort the minimum trigger levels for other states. This would 
be a serious disadvantage to potential bidders who do not 
operate in Florida or California.
    The Committee expects the price of the excess-of-loss 
contract to be actuarially sound. The program is designed so 
the Federal government, and therefore taxpayers, suffer no net 
loss from the program. The auction of excess-of-loss contracts 
is based on a reserve price determined by the Secretary 
according to recommendations from the Advisory Commission. The 
reserve price reflects the risk posed by a given region, a risk 
load to represent a ``cushion'' against a miscalculation of 
risk, and administrative costs. The reserve price shall also 
take into account other factors, such as mitigation programs in 
various states designed to reduce future losses from natural 
disasters.

F. Transferability of reinsurance contracts

    The Committee strongly believes that Federal reinsurance 
contracts should be fully transferable, assignable and 
divisible so that a secondary market for these instruments will 
develop. This secondary market should allow a more efficient 
distribution of reinsurance contracts, particularly among 
insurers too small to bid in the primary auction. It will also 
guide the Secretary in gauging the true value of Federal 
contracts and setting the reserve prices for future auctions.
    It is the Committee's intent for this provision to be 
broadly interpreted. In section 7(b)(2), the words ``at all 
times'' mean that a contract holder may transfer ownership of 
any or all of a contract to another owner either before or 
after any catastrophic loss event. It is to be understood that 
``transferable'' means that the new owner(s) of a contract 
accede to the same rights under the contract, as required by 
and vested in the original owner. It is further understood that 
``assignable'' provides that an owner of a contract may 
transfer all or any part of its interest or rights in a 
contract over to another. It is still further understood that 
``divisible'' allows for any division, partition or 
apportionment of contracts as may be agreed upon by the buyer 
and seller.

G. Premium collection--revenue generation

    While formal CBO scoring is pending, the program is 
designed to create a self-sustaining, self-financing fund. 
According to risk modeling done by Risk Management Solutions, 
Inc. (one of the world's leading authorities on earthquake and 
hurricane risk models), H.R. 219 would actually generate 
significant revenues over a ten-year period assuming both 
claims paid out and premiums collected. To assure that the 
model considered all likely scenarios, the 10-year cash flow 
was simulated 50,000 times. Stated another way, the simulation 
analyzed the effects of hurricanes and earthquakes occurring 
over 500,000 years (10-year cash flows multiplied by 50,000 
simulations).
    According to this study, H.R. 219, on average, creates an 
operating surplus after ten years of approximately $9 billion. 
On average, the program sustains no claims in between 88.5% and 
95.7% of all years in which the program operates. The analysis 
further shows that the likelihood of the program requiring a 
loan from the Federal government to cover any revenue shortfall 
ranged from 2.4% to 3.1%.

H. Commission expertise and membership

    The Committee would note that the bill does not require all 
members of the Commission to be qualified in a field related to 
natural disaster risk assessment or insurance. The Committee 
intends for the Commission to be broadly representative of the 
public interest and serve as an independent advisory body that 
is answerable to a strong code of conduct regarding conflicts 
of interest which is currently applicable to all Federal 
officials and employees. The Committee would expect that a 
majority of the five Commission members have such expertise and 
serve more in a technical advisory capacity to the Secretary 
and less as a broad public policy board.
    The Commission also has authority to seek outside expertise 
and retain temporary and intermittent services of experts and 
consultants. H.R. 219, as originally introduced January 1, 
1997, included requirements that the Commission be made up of 
professional actuaries, representatives of state insurance 
departments, and experts in the field of disaster modeling, 
structural engineering, meteorology and seismology. The 
Committee continues to believe that such expertise is 
appropriate. The Committee would also recommend that if a state 
prone to loss from volcanic eruptions creates a 
qualifyingstate-operated insurance program, or Treasury provides for 
the auction of contracts covering volcanic eruption loss, the 
Commission seeks the consultation of experts in the field of geology 
and related sciences.
    The Committee would also strongly urge Treasury to protect 
the public interest by ensuring that Commission members have no 
personal or professional conflict of interest in the 
deliberations of the Commission.

I. Data collection

    Section 10(h) of the Committee bill authorizes the 
Commission and Treasury to solicit loss exposure data, and such 
other information deemed necessary to carry out the program 
responsibilities under this Act, from governmental agencies and 
bodies and organizations that act as statistical agents for the 
insurance industry. It is anticipated that the data will be 
solicited from statistical agents, which collect data on the 
insurance industry, such as the Insurance Services Office, the 
National Association of Independent Insurers and the American 
Association of Insurance Services. These data are maintained in 
aggregate form to preserve individual company confidentiality. 
The Committee recognizes that individual company loss data and 
related information constitute trade secrets and their 
disclosure is prohibited by law. Section 10(h) of the bill 
contains language intended to protect even the aggregate data 
to be solicited from statistical agents by specifically 
requiring the Secretary and the Commission to take such steps 
as are necessary to ensure that the information remains 
confidential and is not disclosed to any one other than 
authorized individuals working for the Commission or Treasury.
    Section 10(h) also provides that if a company or a state 
refuses to provide information requested by the Commission or 
Treasury, it shall be ineligible to participate in the programs 
authorized by the Act. It is anticipated that this section 
would be enforced in situations where a statistical agent, 
which has collected industry information and provided it in an 
aggregate form to the Commission of the Treasury, notifies 
either of these bodies that a company or other entity had 
refused to provide the needed information for transmission, in 
an aggregate form, to the Commission or Treasury.

                                hearings

    The Subcommittee on Housing and Community Opportunity held 
two hearings on the ``Homeowners' Insurance Availability Act of 
1998.''
    The first hearing was held on June 24, 1997 in Room 2128, 
Rayburn House Office Building. Testifying before the 
Subcommittee were: Bill Gray, Ph.D., Professor of Atmospheric 
Science, Colorado State University; Bob Klein, Ph.D., Director, 
Center for Risk Management and Insurance Research, Georgia 
State University; Greg Butler, Chief Executive Officer, 
California Earthquake Fund; Daniel Sumner, General; Counsel, 
Department of Insurance, State of Florida; Jerry Thomas, 
Chairman, Quaker City Savings Bank, Whittier, CA; James 
Klagholz, Insurance Agent and Secretary-Treasurer, C.N. 
Sterling Associates, Inc.; Steve Bupp, President, Condominium 
Venture, Inc., Greenbelt, MD.
    The second hearing was held on August 25, 1997 at The 
National Hurricane Center at Florida International University, 
Miami, Florida. Testifying before the Subcommittee were: Bryan 
Norcross, Director of Meteorology and News Anchor, WFOR-TV, 
Channel 4--South Florida; the Honorable Bill Nelson, 
Commissioner, Department of Insurance, Office of the Treasurer, 
State of Florida; The Honorable Stan Bainter, Member, Committee 
on Financial Services, Economic Impact Council, Florida State 
House of Representatives, and Immediate Past President of the 
National Conference of Insurance Legislators; Jack Nicholson, 
Ph.D., Chief Operating Officer, Florida Hurricane Catastrophe 
Fund; Frank Nutter, President, Reinsurance Association of 
America; Alex Soto, President, Pennekamp and Soto Insurance 
Agency--Miami, Florida, and former Chairman of the Florida 
Association of Insurance Agents.
    The Committee on Banking and Financial Services held one 
hearing on April 23, 1998 in Room 2128, House Office Building. 
Testifying before the Committee were: The Honorable Vic Fazio 
(D-CA); the Honorable Jo Ann Emerson (R-MO); The Honorable 
Donna M. Christian-Green (D-VI); The Honorable Lawrence 
Summers, Deputy Secretary, U.S. Department of Treasury; The 
Honorable Donald A. Dowdell, Deputy General Counsel, Department 
of Insurance, State of Florida; The Honorable David Knowles, 
Chief Deputy Insurance Commissioner, Department of Insurance, 
State of California; Kevin Campion, Senior Vice President, 
Paragon Reinsurance Risk Management Services, Inc.; Joel 
Freedman, Sr. Vice President, Government Affairs, Hartford 
Financial Services Group; Robert W. Pike, Senior Vice 
President, Secretary and General Counsel, Allstate Insurance 
Company; Rade Muslin, Vice President and Actuary, Florida Farm 
Bureau Insurance Company; Roger Joslin, Chairman of the Board, 
State Farm Fire and Casualty Company; Sylvia Bouriaux Group 
Manager, Financial Products, Chicago Board of Trade; Frank 
Nutter, President Reinsurance Association of America; Isolde G. 
O'Hanlon, Managing Director, Global Insurance Group, Chase 
Securities, Inc.; Jack Weber, President, Home Insurance 
Federation of America; Babette Hembuch, President and CEO, 
First Federal Bank of California on behalf of Western League of 
Savings Institutions; Christopher Lewis, Senior Manager, Risk 
Management Group, PEQA Group, Ernst & Young LLP; Cathy Whatley, 
President, Buck & Buck, Inc., Florida on behalf of the National 
Association of Realtors; Pierre B. Lanaux, President, Lanaux 
Construction, Louisiana on behalf of the National Association 
of Homebuilders; J. Robert Hunter, Director of Insurance, 
Consumer Federation of America (joint statement with the 
Consumers Union); Charles T. Brown, Vice-President, Baker 
Welman Brown Insurance and Financial Services, Missouri on 
behalf of the Independent Insurance Agents of America; and, 
Jordan Clark, President, United Homeowners Association.

     committee consideration and votes (rule xi, clause 2(l)(2)(B)

    The Committee met in open session to mark up H.R. 219, 
``Homeowners' Insurance Act of 1998'' on June 25 and July 15, 
1998. The Committee considered, as original text for purposes 
of amendments, a Committee Print which incorporated a modified 
version of H.R. 219 as reported by the Subcommittee on Housing 
and Community Opportunity.
    During the markup, the Committee approved 12 amendments 
including a managers amendment by voice vote. The Committee 
also defeated 4 amendments by voice vote. Seventeen amendments 
were withdrawn. The Committee approved 1 amendment by recorded 
vote. The Committee defeated 7 amendments by recorded vote. 
Pursuant to the provisions of clause 2(l)(2)(B) of rule XI of 
the House of Representatives, the results of each rollcall vote 
and the motion to report, together with the names of those 
voting for and those against are printed below:

Rollcall No. 1

    Date: June 25, 1998.
    Measure: Homeowners' Insurance Availability Act of 1997.
    Motion by: Mr. Kanjorski.
    Description of motion: Makes the Secretary's authority to 
reduce the trigger level if the claims-paying capacity of the 
state has been reduced due to losses from a covered event 
optional instead of mandatory.
    Results: Passed: Ayes 30, Nays 12.
        YEAS                          NAYS
Mr. Leach                           Mr. McCollum
Mr. Bereuter                        Mrs. Roukema
Mr. Castle                          Mr. Baker, R.
Mr. Campbell                        Mr. Lazio
Mr. Royce                           Mr. Lucas
Mr. Metcalf                         Mrs. Kelly
Mr. Ehrlich                         Dr. Weldon
Mr. Fox                             Mr. LaTourette
Dr. Paul                            Mr. Manzullo
Mr. Ryun                            Mr. Foley
Mr. Snowbarger                      Mr. Redmond
Mr. Riley                           Mr. Fossella
Mr. LaFalce
Mr. Vento
Mr. Frank
Mr. Kanjorski
Ms. Waters
Mrs. Maloney
Ms. Roybal-Allard
Mr. Barrett, T.
Mr. Watt
Mr. Hinchey
Mr. Bentsen
Ms. Kilpatrick
Mr. Maloney
Ms. Hooley
Mr. Weygand
Mr. Sherman
Mr. Sandlin
Ms. Lee

Rollcall No. 2

    Date: June 25, 1998.
    Measure: Homeowners' Insurance Availability Act of 1997.
    Motion by: Mr. LaFalce.
    Description of motion: Provides that, as a condition of 
establishing the Federal program, the Secretary determine that 
the private market's capacity to cover losses from a major 
natural catastrophe is inadequate. Requires the Secretary to 
conduct annual reviews of the program and the private market to 
determine that the private market cannot provide adequate 
coverage and to ensure that the Federal program does not 
compete with development of the private market. If findings are 
different, the Secretary may decline to make reinsurance 
coverage available the following year.
    Results: Defeated: Ayes 20, Nays 28.
        YEAS                          NAYS
Mr. Bachus                          Mr. Leach
Mr. Royce                           Mr. McCollum
Mr. Hill                            Mrs. Roukema
Mr. LaFalce                         Mr. Bereuter
Mr. Vento                           Mr. Baker, R.
Mr. Frank                           Mr. Lazio
Mr. Kanjorski                       Mr. Castle
Mr. Kennedy                         Mr. King
Mrs. Maloney                        Mr. Campbell
Ms. Roybal-Allard                   Mr. Lucas
Mr. Barrett, T.                     Mr. Metcalf
Mr. Watt                            Mr. Ehrlich
Mr. Hinchey                         Mr. Fox
Mr. Ackerman                        Mrs. Kelly
Mr. Bentsen                         Dr. Weldon
Ms. Kilpatrick                      Mr. Ryun
Ms. Hooley                          Mr. Cook
Mr. Sandlin                         Mr. Riley
Mr. Meeks, G.                       Mr. Sessions
Ms. Lee                             Mr. LaTourette
                                    Mr. Manzullo
                                    Mr. Foley
                                    Mr. Jones
                                    Mr. Redmond
                                    Mr. Fossella
                                    Mr. Maloney
                                    Mr. Weygand
                                    Mr. Sherman

Rollcall No. 3

    Date: June 25, 1998.
    Measure: Homeowners' Insurance Availability Act of 1997.
    Motion by: Mr. Hinchey.
    Description of motion: Requires any insurance company that 
participates in the Federal program, either through a State 
program or an auction, to provide insurance coverage for 
covered perils in the areas for which the Federal reinsurance 
is provided.
    Results: Defeated: Ayes 15, Nays 29.
        YEAS                          NAYS
Mr. LaFalce                         Mr. Leach
Mr. Vento                           Mr. McCollum
Mr. Kanjorski                       Mrs. Roukema
Mr. Kennedy                         Mr. Bereuter
Mr. Sanders                         Mr. Baker, R.
Mrs. Maloney                        Mr. Lazio
Ms. Roybal-Allard                   Mr. Bachus
Mr. Barrett, T.                     Mr. Castle
Mr. Hinchy                          Mr. King
Ms. Kilpatrick                      Mr. Campbell
Ms. Hooley                          Mr. Lucas
Mr. Weygand                         Mr. Metcalf
Mr. Sandlin                         Mr. Ehrlich
Mr. Meeks, G.                       Mr. Fox
Ms. Lee                             Mrs. Kelly
                                    Dr. Weldon
                                    Mr. Ryun
                                    Mr. Cook
                                    Mr. Riley
                                    Mr. Hill
                                    Mr. Sessions
                                    Mr. LaTourette
                                    Mr. Manzullo
                                    Mr. Foley
                                    Mr. Jones
                                    Mr. Redmond
                                    Mr. Fossella
                                    Mr. Maloney
                                    Mr. Sherman

Rollcall No. 4

    Date: June 25, 1998.
    Measure: Homeowners' Insurance Availability Act of 1997.
    Motion by: Mr. Bentsen.
    Description of motion: Sets the trigger level for both new 
and existing programs at an amount which will cover eligible 
losses in the State that have a likelihood of occurrence of 
once every one hundred years.
    Results: Defeated: Ayes 13, Nays 25.
        YEAS                          NAYS
Mr. Castle                          Mr. Leach
Mr. Vento                           Mr. McCollum
Mr. Frank                           Mrs. Roukema
Mr. Kanjorski                       Mr. Baker, R.
Mr. Kennedy                         Mr. Lazio
Mr. Sanders                         Mr. Bachus
Ms. Roybal-Allard                   Mr. Campbell
Mr. Watt                            Mr. Royce
Mr. Hinchey                         Mr. Lucas
Mr. Bentsen                         Mr. Metcalf
Ms. Kilpatrick                      Mr. Fox
Ms. Hooley                          Mrs. Kelly
Ms. Lee                             Dr. Paul
                                    Dr. Weldon
                                    Mr. Ryun
                                    Mr. Snowbarger
                                    Mr. Riley
                                    Mr. Hill
                                    Mr. Manzullo
                                    Mr. Foley
                                    Mr. Redmond
                                    Ms. Waters
                                    Mr. Barrett, T.
                                    Mr. Maloney
                                    Mr. Sherman

Rollcall No. 5

    Date: July 15, 1998.
    Measure: Homeowners' Insurance Availability Act of 1997.
    Motion by: Mr. Kennedy.
    Description of motion: Requires that each State insurance 
commission for each state participating in the program and 
holders of auction contracts submit information to Treasury. 
Such information is similar to HMDA data, including race and 
gender area for metropolitan statistical areas.
    Results: Defeated: Ayes 18, Nays 30.
        YEAS                          NAYS
Mr. LaFalce                         Mr. Leach
Mr. Vento                           Mr. McCollum
Mr. Kanjorksi                       Mrs. Roukema
Mr. Kennedy                         Mr. Bereuter
Mrs. Maloney                        Mr. Baker, R.
Mr. Gutierrez                       Mr. Lazio
Ms. Roybal-Allard                   Mr. Bachus
Mr. Barrett, T.                     Mr. Castle
Mr. Watt                            Mr. King
Mr. Bentsen                         Mr. Campbell
Ms. Kilpatrick                      Mr. Royce
Mr. Maloney                         Mr. Lucas
Ms. Hooley                          Mr. Metcalf
Ms. Carson                          Mr. Ney
Mr. Weygand                         Mr. Ehrlich
Mr. Sherman                         Mr. Barr
Mr. Sandlin                         Mr. Fox
Ms. Lee                             Mrs. Kelly
                                    Dr. Paul
                                    Dr. Weldon
                                    Mr. Ryun
                                    Mr. Cook
                                    Mr. Snowbarger
                                    Mr. Riley
                                    Mr. Hill
                                    Mr. LaTourette
                                    Mr. Manzullo
                                    Mr. Foley
                                    Mr. Jones
                                    Mr. Redmond

Rollcall No. 6

    Date: July 15, 1998.
    Measure: Homeowners' Insurance Availability Act of 1997.
    Motion by: Mr. Kanjorski.
    Description of motion: Deletes coverage for perils ensuing 
from earthquakes, including fires.
    Results: Defeated: Ayes 11, Nays 21.
        YEAS                          NAYS
Dr. Paul                            Mr. Leach
Mr. Ryun                            Mr. McCollum
Mr. Hill                            Mrs. Roukema
Mr. LaFalce                         Mr. Bereuter
Mr. Vento                           Mr. Baker, R.
Mr. Kanjorski                       Mr. Lazio
Mr. Kennedy                         Mr. King
Ms. Roybal-Allard                   Mr. Campbell
Mr. Barrett, T.                     Mr. Royce
Mr. Hinchey                         Mr. Lucas
Mr. Bentsen                         Mr. Metcalf
                                    Mrs. Kelly
                                    Dr. Weldon
                                    Mr. Cook
                                    Mr. Snowbarger
                                    Mr. Riley
                                    Mr. Jones
                                    Mr. Fossella
                                    Mr. Maloney
                                    Ms. Hooley
                                    Mr. Sherman

Rollcall No. 7

    Date: July 15, 1998.
    Measure: Homeowners' Insurance Availability Act of 1997.
    Motion by: Mr. Hill and Mr. Hinchey.
    Description of motion: Raises the trigger level to the 
amount that is equal to 7% of the aggregate surplus and capital 
of the insurance industry, and raises the copayment level to 
90%.
    Results: Defeated: Ayes 6, Nays 25.
        YEAS                          NAYS
Mr. Ryun                            Mr. Leach
Mr. Hill                            Mr. McCollum
Mr. Vento                           Mrs. Roukema
Mr. Kanjorksi                       Mr. Bereuter
Mr. Barrett, T.                     Mr. Baker, R.
Mr. Hinchey                         Mr. Lazio
                                    Mr. Bachus
                                    Mr. Campbell
                                    Mr. Lucas
                                    Mr. Metcalf
                                    Mr. Ney
                                    Mrs. Kelly
                                    Mr. Cook
                                    Mr. Snowbarger
                                    Mr. Riley
                                    Mr. Manzullo
                                    Mr. Foley
                                    Mr. Jones
                                    Mr. Redmond
                                    Mr. LaFalce
                                    Mrs. Maloney
                                    Mr. Bentsen
                                    Mr. Maloney
                                    Ms. Hooley
                                    Mr. Sherman

Rollcall No. 8

    Date: July 15, 1998.
    Measure: Homeowners' Insurance Availability Act of 1997.
    Motion by: Mr. Kennedy.
    Description of motion: Replaces the text of the bill with a 
requirement that Treasury conduct a study of the availability 
and affordability of homeowners insurance for natural 
disasters, including an analysis of legislative proposals and 
recommendations on mitigation.
    Results: Defeated: Ayes 15, Nays 28.
        YEAS                          NAYS
Mr. Royce                           Mr. Leach
Dr. Paul                            Mr. McCollum
Mr. Ryun                            Mrs. Roukema
Mr. LaTourette                      Mr. Bereuter
Mr. LaFalce                         Mr. Baker, R.
Mr. Vento                           Mr. Lazio
Mr. Kanjorski                       Mr. Bachus
Mr. Kennedy                         Mr. King
Ms. Waters                          Mr. Campbell
Mr. Gutierrez                       Mr. Lucas
Mr. Barrett, T.                     Mr. Metcalf
Mr. Hinchey                         Mr. Ney
Ms. Kilpatrick                      Mr. Barr
Ms. Carson                          Mr. Fox
Ms. Lee                             Mrs. Kelly
                                    Dr. Weldon
                                    Mr. Cook
                                    Mr. Snowbarger
                                    Mr. Riley
                                    Mr. Manzullo
                                    Mr. Foley
                                    Mr. Jones
                                    Mr. Frank
                                    Mr. Bentsen
                                    Mr. Maloney
                                    Ms. Hooley
                                    Mr. Weygand
                                    Mr. Sherman

    After the Committee Print, as amended, was adopted by voice 
vote, H.R. 219 was called up for Committee consideration. A 
motion to strike everything after the enacting clause in H.R. 
219 and insert in lieu thereof the Committee Print as amended, 
was approved by voice vote.
    A motion to adopt H.R. 219 and favorably report the bill, 
as amended, to the House was approved by a recorded vote of 33-
12 on July 15, 1998.
        YEAS                          NAYS
Mr. Leach                           Mr. Royce
Mr. McCollum                        Mr. Barr
Mrs. Roukema                        Dr. Paul
Mr. Bereuter                        Mr. Ryun
Mr. Baker, R.                       Mr. Kanjorski
Mr. Lazio                           Mr. Kennedy
Mr. Bachus                          Ms. Waters
Mr. King                            Mr. Gutierrez
Mr. Campbell                        Mr. Barrett, T.
Mr. Lucas                           Mr. Watt
Mr. Metcalf                         Mr. Hinchey
Mr. Ney                             Ms. Lee
Mr. Ehrlich
Mr. Fox
Mrs. Kelly
Dr. Weldon
Mr. Cook
Mr. Snowbarger
Mr. Riley
Mr. LaTourette
Mr. Manzullo
Mr. Foley
Mr. Jones
Mr. LaFalce
Mr. Vento
Mr. Frank
Mr. Ackerman
Mr. Bentsen
Mr. Maloney
Ms. Hooley
Mr. Weygand
Mr. Sherman
Mr. Sandlin

                      Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    No findings and recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI (and clause 4(c)(2) of rule X) of 
the Rules of the House of Representatives.

                        constitutional Authority

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of Representatives, the constitutional authority 
for Congress to enact this legislation is derived from the 
general welfare clause (Article I, Sec. 8).

               New Budget Authority and Tax Expenditures

    Clause 2(l)(3)(B) of rule XI of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority for increased tax 
expenditures.

              Congressional Budget Office Costs Estimates

    The cost estimate pursuant to Clause 2(l)(3)(C) of rule XI, 
of the Rules of the House of Representatives and Section 403 of 
the Congressional Budget Act of 1974 has been requested, but 
had not been prepared as of the filing of Part I of this 
report. The estimate will be included in Part II of this report 
to be filed at a future date.

                      Advisory Committee Statement

    No advisory committees within the meaning of Section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                    Congressional Accountability Act

    The reporting requirement under Section 102(b)(3) of the 
Congressional Accountability Act (P.L. 104-1) is inapplicable 
because this legislation does not relate to terms and 
conditions of employment or access to public services or 
accommodations.

       Congressional Budget Office Federal Mandate Cost Estimate

    The cost estimate pursuant to Section 424 of the Unfunded 
Mandates Reform Act (P.L. 104-4) has been requested, but had 
not been prepared as of the filing of this report. The estimate 
will be filed at a future date.

                           Section-By-Section

    Section 1: Title: cited as ``Homeowners' Insurance 
Availability Act of 1998''.
    Section 2: Congressional Findings that homeowners' 
insurance is becoming increasingly difficult to purchase, due 
to increased natural disasters and that there is a temporary 
federal role in providing a reinsurance program for states that 
meet those needs beyond the capacity of the state's claims 
paying capacity, so long as such intervention is founded upon 
sound actuarial principles, priced to minimize the impact to 
the U.S. Treasury, and remain in effect only long enough to 
allow private entities or the capital markets to provide 
adequate reinsurance capacity.
    Section 3: Program Authority to the Secretary of Treasury 
to provide a federal reinsurance program thought reinsurance 
contracts to eligible purchasers under section 6 (state 
programs) and section 7 (regional contracts) so long as the 
private sector is not displaced.
    Section 4: Qualified Lines of Coverage provide specifically 
for residential property losses to homes, condominiums, 
cooperatives and contents of apartment buildings.
    Section 5: Covered Perils include (i) earthquakes, (ii) 
perils ensuing from earthquakes (fire and tsunami), (iii) 
tropical cyclones (including hurricanes and typhoons) where the 
maximum sustained winds are equal to or greater than 74 miles 
per hour, and (iv) volcanic eruptions.
    Section 6: Contracts for Reinsurance Coverage for Eligible 
State Programs are made available to state-operated insurance 
and reinsurance programs if the state program covers 
residential losses; is structured to be exempt from Federal 
taxation; covers a single peril; does not provide for profit to 
any insurer; and, includes a mitigation investment of not less 
than 10% of the program's net investment income (5% if the 
Secretary determines, pursuant to a request from the state 
insurance commissioner, that a 10% requirement would jeopardize 
the actuarial soundness of the state program). For state 
programs beginning after January 1, 1998 (all other state 
programs two years after date of enactment) all state programs 
must not cross-subsidize between separate property and casualty 
lines; must provide that for coverage under the program, 
premium rates must be, at a minimum, sufficient to cover the 
full actuarial costs of such coverage; and, must provide 
authorization to the State insurance commissioner to terminate 
the state program when it is no longer necessary to ensure 
availability of homeowners' insurance.
    The state programs shall be certified and follow 
regulations promulgated by the Secretary, in consultation with 
the National Commission. The regulations shall include 
requirements that state programs have public members on its 
board of directors or advisory board; ensure that state 
coverage does not supplant the private insurance market; 
provide adequate deductibles; provide a non-discriminatory 
clause; provide that new construction meet applicable building, 
fire, and safety codes; ensure consistency with the Federal 
Emergency Management Agency guidelines; programs take into 
account mitigation efforts; and other requirements considered 
necessary by the Secretary.
    Terms of the contracts may not exceed one year, with claim 
payments only to eligible state programs and a payout at the 
occurrence and level where disaster costs exceed the retained 
losses noted in Section 8.
    The contract shall cover eligible losses from multiple 
events during the term of the contract. Qualified losses 
include only property covered under the contract that are paid 
within a 3 year period from the natural disaster event. Pricing 
is established by the Secretary, in consultation with the 
National Independent Commission on Catastrophe Risks and 
Insurance Loss Costs, established at a level designed to fairly 
compensate taxpayers for the risks borne, taking into 
consideration the developmental stage of models and private 
market capacity, and designed to provide for program self-
sufficiency. The price of the contracts shall consist of a 
risk-based price not less than the anticipated payout of the 
contract according to the Commission's actuarial analysis and 
recommendations, a risk load at least equal to the risk-based 
price and administrative costs. In cases where Treasury 
borrowing occurs, covered purchasers receiving payments for 
qualifying claims derived from borrowed funds are required to 
continue purchasing contracts until borrowed funds are repaid. 
The contract shall provide purchasers the single opportunity to 
purchase identical coverage for the remaining term of the 
initial contract if the coverage under the initial contract is 
exhausted.
    Section 7: Auction of Contracts for Reinsurance Coverage 
shall be carried out by Treasury to provide for auctioning of 
contracts to private insurers, reinsurers and state insurance 
and reinsurance programs. Auctions shall provide for coverage 
on a regional basis, in no less than six, with separate regions 
including all or part of Florida, and all or part of 
California.
    In auctioning the contracts, Treasury shall set a reserve 
price as the lowest base price of the contract based on the 
Commission's recommendations to include a risk-based price not 
less than the anticipated payout of the contract according to 
the Commission's actuarial analysis and recommendations, a risk 
load at least equal to the risk-based price and administrative 
costs also taking into account administrative costs and 
mitigation efforts.
    Terms of the contract may not exceed one year, are fully 
transferable and divisible, cover eligible losses from multiple 
events during the term of the contract, provide for payment 
above the minimum level of retained losses by region as 
specified in section 8, and provide purchasers the single 
opportunity to purchase identical coverage for the remaining 
term of the initial contract if the coverage under the initial 
contract is exhausted.
    Section 8: Minimum Level of Retained Losses and Maximum 
Federal Liability require minimum levels of retained losses for 
state programs at a level that is not less than the greater of 
$2 billion in residential losses, the current claims paying 
capacity or an amount equal to a loss associated with an event 
occurring one in 100 years. In cases of existing state programs 
that have a claims paying capacity greater than $2 billion but 
less than an amount equal to a loss associated with a one in 
100 year event, the state shall provide a written agreement to 
transition an increase of retained losses during a five year 
period, with an extension for 2 additional one year periods.
    For state programs created after January 1, 1998, the 
Secretary, in consultation with the National Commission on 
Catastrophe Risks and Insurance Loss Costs, may establish 
minimum retained loss levels below $2 billion in an amount 
equal to losses associated with a one in 100 year event, except 
adjustments shall be made for a five year period to increase to 
the minimum level of $2 billion.
    In cases where a state program experiences an accumulation 
of events that exceed the claims paying capacity in that state, 
the Secretary may reduce retained loss triggers, but not less 
than $2 billion, so long as the retained loss levels are 
increased within 5 years.
    Auction contracts will not be available through any region 
unless the auction conducted sustains a cumulative amount of 
losses greater than $2 billion or an amount equal to a loss 
associated with a one and 100 year event.
    Treasury may annually raise the minimum level of retained 
losses for state programs or regions to reflect the growth in a 
state program's claims paying capacity or the growth of 
capacity in the private market.
    The claims paying capacity is defined as the consideration 
of retained losses to private insurers assigned by the State 
insurance commissioner; the cash surplus of the program; and 
the lines of credit, reinsurance, and other financing 
mechanisms of the program established by law.
    In all cases, where total maximum losses exceed $25 
billion, payouts will be prorated. The Secretary is authorized 
to phase-in maximum yearly liability during the initial 4 years 
of the program. Annual adjustments are at the Secretary's 
discretion based on an annual rate of inflation for state and 
auction programs' retained losses. For maximum federal 
liability, the $25 billion limitation may be adjusted for 
inflation.
    Treasury may not make available for purchase reinsurance 
contracts that represents more than 50 percent of insured 
losses for state programs or by region.
    Section 9: Disaster Reinsurance Fund is established within 
the Treasury Department to accept proceeds from the sale of 
contracts, borrowed funds, investments or other amounts.
    Section 10: National Commission of Catastrophe Risks and 
Insurance Loss Costs is established with the sole purpose of 
advising the Secretary regarding estimating the loss costs 
associated with reinsurance contracts under the Act. The Act 
provides an appropriation of $1 million for initial start-up 
costs, with cost offsets derived from contract proceeds. Five 
(5) members are to be appointed to the Commission, by the 
Secretary. Commission members will have no personal, 
professional, or financial interest at stake in the 
deliberations of the Commission. At least one member shall 
represent a nationally recognized consumer organization.
    Section 11: Definitions.
    Section 12: Termination is required of this Act after 10 
years from enactment. In the event that the Secretary, in 
consultation with the National Commission, determines that 
there is insufficient growth of capacity in the private 
homeowners' insurance market, this Act may be extended for an 
additional five year term.
    Section 13: Annual Study of Cost and Availability of 
Disaster Insurance and Program Need is required of the 
Secretary on an annual basis reporting the cost and 
availability of homeowners' insurance for losses resulting from 
catastrophic natural disasters. The first report shall be due 
two years after the date of this Act's enactment.

                changes in existing law made by the bill

    This bill does not contain changes to existing law and 
therefore no comparative print of how this bill affects current 
law is included, pursuant to Clause 3 of Rule XIII of the Rules 
of the House of Representatives.

           ADDITIONAL VIEWS OF CONGRESSMAN MICHAEL N. CASTLE

    I want to express my support for the hard work Chairman 
Leach, Chairman Lazio, Congressman McCollum and the Banking 
Committee staff have put into H.R. 219. The lack of affordable 
disaster relief for homeowners had not received adequate 
regulatory or legislative attention prior to their efforts.
    This legislation has been significantly improved after both 
the Housing Subcommittee markup and the Banking Committee 
markup. In particular, the legislation has made significant 
gains in protecting the American taxpayer from responsibility 
for excessive losses by reducing the federal government's cost 
share to fifty percent of the uninsured residential losses. The 
legislation has also displayed great wisdom in allocating funds 
toward mitigation efforts that reduce the overall cost of 
future disasters. This type of forward thinking has been absent 
from disaster insurance debates for too long.
    Finally, I appreciate the willingness of all the committee 
members to continue to develop a trigger mechanisms that is 
actuary sound, protects federal taxpayer funds, and provides 
equitable treatment for all states. I recognize the need for a 
minimum trigger level to protect the Treasury Department from 
undue influence. However, I have concerns that the $2 billion 
minimum trigger level may be too high for small coastal states 
such as Rhode Island and Delaware. Actuary analysis of one in 
one hundred year events have traditionally estimated combined 
commercial and residential losses. Before the Banking Committee 
makes a final determination on the minimum trigger level, it is 
essential that we isolate the expected residential loss data on 
a state-by-state and region-by-region basis for a one in one 
hundred year event. I took forward to working with my fellow 
Banking Committee Members on this issue in the coming months.
                                                 Michael N. Castle.

            IN STRONG SUPPORT OF DISASTER RELIEF LEGISLATION

    I voted in support of this disaster relief legislation, 
H.R. 219, because I believe we should ensure that consumers 
have access to property insurance that is affordable and 
available. As the representative for the State of Texas where 
many of these disasters may strike, I believe it is critically 
important that we establish a new federal disaster reinsurance 
program for American homeowners. This legislation would provide 
cost-effective, reasonably priced residential property 
insurance in those areas where the private sector reinsurance 
industry is no longer meeting homeowners' needs.
    This legislation would establish a federal disaster 
reinsurance program to provide residential property insurance 
for all Americans. In the current market, there are parts of 
the country where residential disaster insurance is no longer 
available, or is cost-prohibitive for many individuals. This 
legislation would provide a new federal reinsurance policy that 
is reasonable and fair. In order to protect taxpayers and 
ensure that this program is financially sound, this program 
would only be available in cases where the private sector is no 
longer serving a state or region. This legislation would also 
require that the federal reinsurance would only cover 50 
percent of losses that resulted from catastrophic natural 
disaster. This legislation also provides reinsurance at the 
greater of three thresholds: the capacity of an existing 
states' or regional risk pool capacity, a one in 100-year 
storm, or a $2 billion threshold. I am pleased that the House 
Banking Committee adopted an amendment that would require 
existing state programs to gradually increase their trigger to 
the one in the 100-year storm level over five years.
    I also want to highlight a critical amendment that the 
House Banking Committee adopted which I offered to ensure that 
all states can equally benefit from this legislation. The 
Bentsen amendment would provide a lower threshold level for 
those states whose one in 100-year storm would be below the $2 
billion threshold in this bill if, in fact, such reinsurance 
was not available through the private market. It is estimated 
that only 8 states would have access to the federal reinsurance 
program at the current $2 billion level. My amendment would 
provide a five-year transition period for states to reach their 
$2 billion trigger level. My amendment would allow each state 
to initially access this program at the one in 100-year storm 
level and proportionately increase their trigger level to $2 
billion over five years.
    Originally, I offered an amendment to make this threshold 
uniform to the one in 100-year storm level. Regrettably, this 
amendment failed. My second amendment would provide the same 
type of transition rules that existing plans would receive. For 
example, in Texas, a one in 100-year storm is estimated to cost 
$1.7 billion. Under the original bill, Texas would have a 125-
year event in order to benefit from the federal program. My 
amendment ensures that the Secretary of the Treasury would be 
required to lower the threshold for Texas to $1.7 billion in 
order to cover a natural disaster in consultation with the 
National Commission on Catastrophic Risks and Insurance Loss 
Costs. Over five years, the state of Texas' trigger would 
increase from $1.7 billion to the $2 billion level.
    I also offered an amendment in conjunction with Rep. 
Roukema of New Jersey that requires the Secretary of the 
Treasury to conduct an annual study to be submitted to Congress 
on this federal reinsurance program. This amendment would 
ensure that Congress is provided accurate information about how 
the reinsurance program is serving those consumers who need it. 
This study would also require the Secretary of the Treasury to 
provide information on the capacity of the private homeowners' 
insurance market in each State with respect to coverage for 
losses from catastrophic natural disasters, the percentage of 
homeowners with such coverage, the disasters covered and the 
average cost of such coverage. This study would also describe 
how the Federal reinsurance program is affecting the price and 
availability of such insurance in each state or region.
    I believe that the bill reported by the House Banking 
Committee is appropriate and reasonable. I am pleased that the 
House Banking Committee has acted to protect the availability 
of homeowners' insurance in disaster-prone areas. I look 
forward to working with the Committee to ensure that all states 
equally benefit from this program and we work to reduce the 
need for federal reinsurance by encouraging the private sector 
to meet the needs of homeowners.
                                            Kenneth E. Bentsen, Jr.

                DISSENTING VIEW OF RON PAUL AND JIM RYUN

    Federal reinsurance should not be viewed as the only option 
for reforming the market for natural disaster insurance. 
Unfortunately, very little attention has been paid to 
alternative approaches. Federal reinsurance fails to address 
underlying regulatory and tax policies that have limited the 
amount of coverage that can be offered and underwritten by 
natural disaster insurers in the private market. This initial 
government intervention in the private market is the cause of 
much of the problem, and it is what must be addressed.
    Florida, for example, restricts the premium rates that 
insurers may charge for homeowners insurance. Though perhaps 
intended to benefit consumers living in disaster-prone areas, 
this type of governmental rate regulation often discourages 
insurers from offering greater coverage to potential 
policyholders. Federal reinsurance would only help states 
disguise some of the consequences of such adverse regulatory 
policies. Congress should, of course, recognize Constitutional 
restraints and not interfere in state regulation of insurance. 
It should also resist the impulse to relieve these same states 
from the consequences of their own misguided regulation.
    Federal tax policies have likewise added to the funding 
problems for private insurers covering natural disaster risks. 
Federal tax policy ignores the nature of disasters as long-term 
risks. Currently, all insurer income in excess of annual 
expenses is considered profit and is subject to federal income 
tax. This undermines the ability of insurers to set aside money 
for that very rainy day when a hurricane causes unusually 
costly damages.
    This bill would not be enforced uniformly throughout the 
country and, in effect, permanently makes Texans and Kansans 
second class citizens who would be forced to subsidize the 
greater benefits reserved only to California, Florida and 
Hawaii. In addition, by subsidizing insurance in high risk 
areas, the bill would have unintended consequences both 
environmental and human. High risk areas are often in 
environmentally fragile areas which would be put in greater 
environmental jeopardy under this bill than under a free 
market. The human toll could be great: since people judge the 
risks they will take using insurance rates as a guide, the 
distortion of this pricing system would have the effect of 
encouraging families to remain in or move to high risk areas 
and add a marginal disincentive to move to or remain in lower 
risk areas; thus, when the next natural disaster hits, more 
people will be put in danger and the casualties will likely be 
higher. A situation which will undoubtedly be used to justify 
the next ``round'' of intervention!
    A better solution to the problem that government 
intervention caused would be to reduce or remove the initial 
artificial intervention in the market. One way would be to 
allow insurance companies to accumulate funds on a tax-
deductible basis over time to pay for these long-term risks. 
Improved tax treatment would allow private insurers to 
accumulate reserves more quickly, and enhance private insurers' 
capacity to pay for the costs of natural disasters. Such 
reserves would also allow a greater share of natural disaster 
risks in catastrophe-prone areas to remain with the private 
insurance sector, instead of shifting those risks to other 
taxpayers.
    In addition, greater private disaster reserves could lead 
to lower insurance premiums and a more consistent supply of 
insurance coverage in disaster-prone areas. Consumers would 
benefit most under such an approach with lower costs and 
greater availability. For the private sector to function best, 
the government cannot restrict the tools necessary to maintain 
and accumulate the funds needed to pay for natural disaster 
risks. Tax-deductible reserves are just this sort of tool.
    Several studies have addressed the issue of disaster 
reserves. These include ``Tax-Deductible, Pre-Event Catastrophe 
Reserves,'' authored by Ross J. Davidson Jr. and published in 
the Winter 1996 edition of the Journal of Insurance Regulation, 
a publication of the National Association of Insurance 
Commissioners; and ``Insuring Against Natural Disasters: 
Possibilities for Market-Based Reform,'' by Catherine England 
and Jeffrey R. Yousey, recently published by the Competitive 
Enterprise Institute.
    Encouraging the further growth and development of the 
private insurance markets would, in the end, be the best way to 
address the problems currently facing homeowners in disaster-
prone areas. To improve the private market for disaster 
insurance, one must alleviate or eliminate the governmental 
regulatory intervention distorting the conditions under which 
private insurers must operate. A new federal reinsurance 
program goes in the wrong direction. Such a new federal 
regulatory intervention would only distort the market further 
and exacerbate the problems presented by natural disasters.

                                   Ron Paul.
                                   Jim Ryun.

DISSENTING VIEWS OF MR. KANJORSKI, MR. KENNEDY, DR. PAUL, MR. BARRETT, 
MR. SANDERS, MS. ROYBAL-ALLARD, MR. HINCHEY, MR. GUTIERREZ, AND MS. LEE

    This legislation is fatally flawed for numerous reasons:
    It exposes federal taxpayers to $25 billion in unnecessary 
liability.
    It does not treat all states equally and will result in the 
vast majority of taxpayers in low-risk areas subsidizing 
several large insurance companies that serve high risk areas.
    It will impede, rather than encourage, the development of 
the private insurance market.
    It encourages development in high-risk areas.
    It contains a mitigation program with virtually no 
standards or federal oversight that can be used to subsidize 
existing services.
    It insures against fire following an earthquake, a peril 
that is already covered by traditional homeowners' insurance. 
In a one-in-one hundred year event in California alone, this 
will shift more than $10 billion in losses from private 
insurance companies to federal taxpayers.
    There is no basis on which to accurately predict the 
probability of events of this nature, or the damage that will 
be done by them. Consequently the ``actuarial basis'' of this 
legislation is nothing more than ``smoke and mirrors.'' The 
Treasury has no expertise in this field, and there is no 
guarantee that the Commission which this legislation 
establishes will be able to accurately predict either the 
probability of events or the magnitude of damage.
    It allows state programs to have unreasonably high 
deductibles, thus providing protection only for insurers and 
lenders, not homeowners.
    There are no provisions to ensure that the program will 
benefit low- and moderate-income families, and not just 
affluent families in Malibu and Palm Beach.
    The legislation is opposed by:
          Taxpayers for Common Sense;
          Consumers Union;
          Coast Alliance;
          National Taxpayers' Union;
          Consumer Federation of America;
          Center for Marine Conservation;
          U.S. Public Interest Group;
          Friends of the Earth;
          Alliance of American Insurers;
          National Association of Mutual Insurance Companies;
          Cincinnati Insurance Companies; and
          Frankenmuth Mutual Insurance Company.
    Here is what experts are saying about H.R. 219.
    The National Taxpayers Union--``The issue of a federal role 
in this area, if any, is highly complex and controversial and 
in our view requires much more additional study before approval 
of legislation.''
    Citizens for a Sound Economy--``There is ample reason to 
believe that H.R. 219 would promote risky behavior by 
encouraging further development in disaster-prone areas. 
Moreover, taxpayers across the country * * * would be forced to 
subsidize such behavior.'' * * * ``There can be little doubt 
that a $2 billion trigger will bring the Disaster Reinsurance 
Fund into direct competition with private reinsurance firms. 
Thus, instead of casting the federal government as the 
`reinsurer of last resort,' as proponents claim, H.R. 219 will 
simply transfer disaster-related risk from the private sector 
to the federal government.'' * * * ``Congress will do them 
[private insurance companies] and the entire country a 
disservice if it allows the federal government to become the 
Great Enabler of risk-seeking behavior. H.R. 219 sets the 
federal government on that course.''
    Competitive Enterprise Institute--``* * * the legislation's 
emphasis on a new program of federal reinsurance is ill-
advised, and the specific measures proposed for its 
implementation remain problematic at best.'' * * * ``Given 
current political realities, there is every reason to believe 
that such reinsurance coverage will be underpriced. * * * 
Federal reinsurance could very quickly become a federal 
subsidy.'' * * * ``this bill would concentrate risk in 
government hands, while discouraging a greater role for the 
private sector.''
    Consumers Union & The Consumer Federation of America--``In 
general, the program fails to ensure access to adequate and 
affordable insurance for consumers; fails to incorporate 
mitigation standards; increases dramatically the exposure of 
the federal government to liability for disasters * * *; fails 
to capitalize on the capacity of the private market; expands 
the scope of disaster insurance coverage provided by the state 
pools and the federal government; lacks adequate federal 
oversight of the pools and the industry that will benefit from 
the program.''
    The Cincinnati Insurance Companies--``First and foremost, 
natural disaster legislation should not complete with private 
sector capacity to provide insurance. But this is exactly what 
H.R. 219 does. With trigger levels as low as $2 billion, H.R. 
219 will transfer risk to the federal government at levels far 
below industry capacity. * * * At such low trigger levels the 
federal government will not only compete with and displace 
private markets for reinsurance, it will also be exposed to 
losses which could exceed $25 billion, which has the potential 
of creating a crisis similar to what we saw in the savings and 
loan industry not too many years ago.'' * * * ``H.R. 219 also 
sets a dangerous precedent by offering federal reinsurance to 
state residual market pools at very low trigger levels.''
    Alliance of American Insurers--``* * * overall we believe 
that this legislation does not address the crux of the 
problem.'' * * * ``Because we are opposed to the underlying 
premise that state pools need federal reinsurance, our position 
on the bill remains unchanged. We believe that this only 
continues to perpetuate the cycle of insurance rate 
suppression, rate subsidization, and overbuilding, particularly 
in coastal areas.''
    National Association of Mutual Insurance Companies--``NAMIC 
does not believe that federal government involvement in the 
catastrophe insurance or reinsurance market is warranted at 
this time.'' * * * ``federal government involvement at this 
time could have the unintended effect of stifling innovation 
and leaving companies with fewer options to address their 
individual needs.''
    Frankenmuth Mutual Insurance Company--``The Federal 
Government would find itself competing with the private 
industry--not a desired objective. State regulation is not 
supported--again the wrong result. The impact on insurance 
carriers differs--not in the public's best interest.''

                                   Paul E. Kanjorski.
                                   Tom Barrett.
                                   Bernard Sanders.
                                   Lucille Roybal-Allard.
                                   Maurice Hinchey.
                                   Luis V. Gutierrez.
                                   Barbara Lee.
                                   Joe Kennedy.
                                   Ron Paul.

                                
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