[House Report 111-534]
[From the U.S. Government Publishing Office]



111th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     111-534

======================================================================



 
                    HOMEOWNERS' DEFENSE ACT OF 2010

                                _______
                                

 July 13, 2010.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Frank of Massachusetts, from the Committee on Financial Services, 
                        submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 2555]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 2555) to ensure the availability and affordability 
of homeowners' insurance coverage for catastrophic events, 
having considered the same, report favorably thereon with an 
amendment and recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     2
Purpose and Summary..............................................    11
Background and Need for Legislation..............................    12
Hearings.........................................................    14
Committee Consideration..........................................    15
Committee Votes..................................................    15
Committee Oversight Findings.....................................    19
Performance Goals and Objectives.................................    19
New Budget Authority, Entitlement Authority, and Tax Expenditures    20
Committee Cost Estimate..........................................    20
Congressional Budget Office Estimate.............................    20
Federal Mandates Statement.......................................    27
Advisory Committee Statement.....................................    27
Constitutional Authority Statement...............................    28
Applicability to Legislative Branch..............................    28
Earmark Identification...........................................    28
Section-by-Section Analysis of the Legislation...................    28
Dissenting Views.................................................    33

                               AMENDMENT

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

  (a) Short Title.--This Act may be cited as the ``Homeowners' Defense 
Act of 2010''.
  (b) Table of Contents.--The table of contents for this Act is as 
follows:

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purposes.

             TITLE I--NATIONAL CATASTROPHE RISK CONSORTIUM

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

              TITLE II--CATASTROPHE OBLIGATION GUARANTEES

Sec. 201. Purposes.
Sec. 202. Establishment of debt guarantee program.
Sec. 203. Effect of guarantee.
Sec. 204. Full faith and credit.
Sec. 205. Fees for guarantees; amount; collection.
Sec. 206. Payment of losses.
Sec. 207. Regulations.

      TITLE III--REINSURANCE COVERAGE FOR ELIGIBLE STATE PROGRAMS

Sec. 301. Program authority.
Sec. 302. Contract principles.
Sec. 303. Terms of reinsurance contracts.
Sec. 304. Maximum Federal liability.
Sec. 305. Federal Natural Catastrophe Reinsurance Fund.
Sec. 306. Regulations.

                   TITLE IV--MITIGATION GRANT PROGRAM

Sec. 401. Mitigation grant program.

                      TITLE V--GENERAL PROVISIONS

Sec. 501. Eligible State programs.
Sec. 502. Study and conditional coverage of commercial residential 
lines of insurance.
Sec. 503. Study of risk-based pricing and State program rates.
Sec. 504. Definitions.
Sec. 505. Regulations.

SEC. 2. FINDINGS AND PURPOSES.

  (a) Findings.--The Congress finds that--
          (1) the United States has a history of catastrophic natural 
        disasters, including hurricanes, tornadoes, flood, fire, 
        earthquakes, and volcanic eruptions;
          (2) although catastrophic natural disasters occur 
        infrequently, they will continue to occur and are predictable;
          (3) such disasters generate large economic losses and a major 
        component of those losses comes from damage and destruction to 
        homes;
          (4) for the majority of Americans, their investment in their 
        home represents their single biggest asset and the protection 
        of that investment is paramount to economic and social 
        stability;
          (5) the United States needs to take and support State actions 
        to be better prepared for and better protected from 
        catastrophes;
          (6) as the risk of catastrophic losses grows, so do the risks 
        that any premiums collected by private insurers for extending 
        coverage will be insufficient to cover future catastrophes, and 
        private insurers, in an effort to protect their shareholders 
        and policyholders (in the case of mutually owned companies), 
        have thus significantly raised premiums and curtailed insurance 
        coverage in States exposed to major catastrophes;
          (7) such effects on the insurance industry have been harmful 
        to economic activity in States exposed to major catastrophes 
        and have placed significant burdens on residents of such 
        States;
          (8) Hurricanes Katrina, Rita, and Wilma struck the United 
        States in 2005, causing over $200,000,000,000 in total economic 
        losses, and insured losses to homeowners in excess of 
        $50,000,000,000;
          (9) the Federal Government has provided and will continue to 
        provide resources to pay for losses from future catastrophes;
          (10) when Federal assistance is provided to the States, 
        accountability for Federal funds disbursed is paramount;
          (11) the Government Accountability Office or other 
        appropriate agencies must have the means in place to confirm 
        that Federal funds for catastrophe relief have reached the 
        appropriate victims and have contributed to the recovery effort 
        as efficiently as possible so that taxpayer funds are not 
        misspent and citizens are enabled to rebuild and resume 
        productive activities as quickly as possible;
          (12) States that are recipients of Federal funds must be 
        responsible to account for and provide an efficient means for 
        distribution of funds to homeowners to enable the rapid 
        rebuilding of local economies after a catastrophic event 
        without unduly burdening taxpayers who live in areas seldom 
        affected by natural disasters;
          (13) State insurance and reinsurance programs can provide a 
        mechanism for States to exercise that responsibility if they 
        appropriately underwrite and price risk, and if they pay claims 
        quickly and within established contractual terms;
          (14) making available Federal guarantees to enhance the 
        capability of eligible State programs to issue debt will 
        minimize the exposure of State and Federal taxpayers who 
        otherwise may bear the consequences of underfunded programs or 
        under-insured communities following catastrophic events, 
        especially during today's historic market turmoil; and
          (15) it is the proper role of the Federal Government to 
        prepare for and protect its citizens from catastrophes and to 
        facilitate consumer protection, victim assistance, and 
        recovery, including financial recovery.
  (b) Purposes.--The purposes of this Act are to establish a program to 
provide Federal support for State-sponsored insurance programs to help 
homeowners prepare for and recover from the damages caused by natural 
catastrophes, to encourage mitigation and prevention for such 
catastrophes, to promote the use of private market capital as a means 
to insure against such catastrophes, to expedite the payment of claims 
and better assist in the financial recovery from such catastrophes.

             TITLE I--NATIONAL CATASTROPHE RISK CONSORTIUM

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

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

SEC. 102. FUNCTIONS.

  The Consortium shall--
          (1) work with all States, particularly those participating in 
        the Consortium, to gather and maintain an inventory of 
        catastrophe risk obligations held by State reinsurance funds, 
        State residual insurance market entities, and State-sponsored 
        providers of natural catastrophe insurance;
          (2) at the discretion of the affected members and on a 
        conduit basis, issue securities and other financial instruments 
        linked to the catastrophe risks insured or reinsured through 
        members of the Consortium in the capital markets;
          (3) coordinate reinsurance contracts between participating, 
        qualified reinsurance funds and private parties;
          (4) act as a centralized repository of State risk information 
        that can be accessed by private-market participants seeking to 
        participate in the transactions described in paragraphs (2) and 
        (3) of this section;
          (5) establish a catastrophe risk database to perform research 
        and analysis that encourages standardization of the risk-linked 
        securities market;
          (6) perform any other functions, other than assuming risk or 
        incurring debt, that are deemed necessary to aid in the 
        transfer of catastrophe risk from participating States to 
        private parties; and
          (7) submit annual reports to Congress describing the 
        activities of the Consortium for the preceding year, and the 
        first such annual report shall include an assessment of the 
        costs to States and regions associated with catastrophe risk 
        and an analysis of the costs and benefits, for States not 
        participating in the Consortium, of such nonparticipation.

SEC. 103. POWERS.

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

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

  (a) Nonprofit Entity.--The Consortium shall be a nonprofit entity and 
no part of the net earnings of the Consortium shall inure to the 
benefit of any member, founder, contributor, or individual.
  (b) Conflicts of Interest.--No director, officer, or employee of the 
Consortium shall in any manner, directly or indirectly, participate in 
the deliberation upon or the determination of any question affecting 
his or her personal interests or the interests of any Consortium, 
partnership, or organization in which he or she is directly or 
indirectly interested.
  (c) Audits.--
          (1) Annual audit.--The financial statements of the Consortium 
        shall be audited annually in accordance with generally accepted 
        auditing standards by independent certified public accountants.
          (2) Reports.--The report of each annual audit pursuant to 
        paragraph (1) shall be included in the annual report submitted 
        in accordance with section 102(7).
  (d) Prohibition on Election and Lobbying Activities.--
          (1) Federal.--The Consortium may not--
                  (A) make any contribution to a candidate for election 
                for Federal office or to a political committee;
                  (B) employ or retain--
                          (i) a registered lobbyist under the Lobbying 
                        Disclosure Act of 1995 (2 U.S.C. 1601 et seq.); 
                        or
                          (ii) an organization that employs one or more 
                        lobbyists and is registered under section 
                        4(a)(2) of such Act (2 U.S.C. 1603(a)(2)); or
                  (C) provide any thing of value, other than 
                educational materials or information, to any elected 
                official of the Federal Government.
        For purposes of this paragraph, the terms ``contribution'', 
        ``candidate'', ``Federal office'', and ``political committee'' 
        have the meanings given such terms in section 301 of the 
        Federal Election Campaign Act of 1971 (2 U.S.C. 431).
          (2) Consortium.--The Consortium may not--
                  (A) make any contribution to a candidate for election 
                for any State or local office or to any committee, 
                club, association, or other group that receives 
                contributions or makes expenditures for the purpose of 
                influencing any such election;
                  (B) employ or retain any person who engages in 
                influencing legislating (as such term is defined in 
                section 4911(d) of the Internal Revenue Code of 1986 
                (26 U.S.C. 4911(d))) of any State or local legislative 
                body; or
                  (C) provide any thing of value, other than 
                educational materials or information, to any elected 
                official of any State or local government.

SEC. 105. MANAGEMENT.

  (a) Board of Directors; Membership; Designation of Chairperson.--
          (1) Board of directors.--The management of the Consortium 
        shall be vested in a board of directors (referred to in this 
        title as the ``Board'') composed of not less than 3 members.
          (2) Chairperson.--The Secretary of the Treasury, or the 
        designee of the Secretary, shall serve as the chairperson of 
        the Board.
          (3) Membership.--The members of the Board shall include--
                  (A) the Secretary of Homeland Security and the 
                Secretary of Commerce, or the designees of such 
                Secretaries, respectively, but only during such times 
                as there are fewer than two States participating in the 
                Consortium; and
                  (B) a member from each State participating in the 
                Consortium, who shall be appointed by such State.
  (b) Bylaws.--The Board may prescribe, amend, and repeal such bylaws 
as may be necessary for carrying out the functions of the Consortium.
  (c) Compensation, Actual, Necessary, and Transportation Expenses.--
          (1) Non-federal employees.--A member of the Board who is not 
        otherwise employed by the Federal Government shall be entitled 
        to receive the daily equivalent of the annual rate of basic pay 
        payable for level IV of the Executive Schedule under section 
        5315 of title 5, United States Code, as in effect from time to 
        time, for each day (including travel time) during which such 
        member is engaged in the actual performance of duties of the 
        Consortium.
          (2) Federal employees.--A member of the Board who is an 
        officer or employee of the Federal Government shall serve 
        without additional pay (or benefits in the nature of 
        compensation) for service as a member of the Consortium.
          (3) Travel expenses.--Members of the Consortium shall be 
        entitled to receive travel expenses, including per diem in lieu 
        of subsistence, equivalent to those set forth in subchapter I 
        of chapter 57 of title 5, United States Code.
  (d) Quorum.--A majority of the Board shall constitute a quorum.
  (e) Executive Director.--The Board shall appoint an executive 
director of the Consortium on such terms as the Board may determine.

SEC. 106. STAFF; EXPERTS AND CONSULTANTS.

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

SEC. 107. FEDERAL LIABILITY.

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

SEC. 108. AUTHORIZATION OF APPROPRIATIONS.

  There are authorized to be appropriated to carry out this title 
$20,000,000 for each of fiscal years 2010 through 2014.

              TITLE II--CATASTROPHE OBLIGATION GUARANTEES

SEC. 201. PURPOSES.

  The purposes of this title are to establish a program--
          (1) to promote the availability of private capital to provide 
        liquidity and capacity to State catastrophe insurance programs; 
        and
          (2) to expedite the payment of claims under State catastrophe 
        insurance programs and better assist the financial recovery 
        from significant natural catastrophes by authorizing the 
        Secretary of the Treasury to guarantee debt for such purposes.

SEC. 202. ESTABLISHMENT OF DEBT GUARANTEE PROGRAM.

  (a) Authority of Secretary.--The Secretary of the Treasury is 
authorized and shall have the powers and authorities necessary to 
guarantee, and to enter into commitments to guarantee, holders of debt 
against loss of principal or interest, or both, on any such debt issued 
by eligible State programs for purposes of this title, provided that 
the total principal amount of debt obligations guaranteed by the 
Secretary--
          (1) for eligible State programs that cover earthquake peril 
        shall not exceed $3,500,000,000; and
          (2) for eligible State programs that cover all other perils 
        shall not exceed $17,000,000,000.
  (b) Conditions for Guarantee Eligibility.--A debt guarantee under 
this section may be made only if the Secretary has issued a commitment 
to guarantee to an eligible State program. The commitment to guarantee 
shall be for a period of 3 years and may be extended by the Secretary 
for a period of 1 year on each annual anniversary of the issuance of 
the commitment to guarantee. The commitment to guarantee and each 
extension of such commitment may be issued by the Secretary only if the 
following requirements are satisfied:
          (1) The eligible State program submits to the Secretary a 
        report setting forth, in such form and including such 
        information as the Secretary shall require, how the eligible 
        State program plans to repay the debt.
          (2) Based upon the eligible State program's report submitted 
        pursuant to paragraph (1), the Secretary determines there is 
        reasonable assurance that the eligible State program can meet 
        its repayment obligation under the debt.
          (3) The eligible State program enters into an agreement with 
        the Secretary, as the Secretary shall require, that the 
        eligible State program will not use Federal funds of any kind 
        or from any Federal source (including any disaster or other 
        financial assistance, loan proceeds, and any other assistance 
        or subsidy) to repay the debt.
          (4) The commitment to guarantee shall specify the fees for 
        debt guarantee coverage.
          (5) The maximum term of the debt that shall be specified in a 
        commitment issued under this section may not exceed 30 years.
          (6) The Secretary determines that the eligible State program 
        does not cover losses arising from floods to properties located 
        in areas having special flood hazards (as such term is defined 
        for purposes of the National Flood Insurance Act of 1968 and 
        the Flood Disaster Protection Act of 1973).
  (c) Mandatory Assistance for Eligible State Programs.--The Secretary 
shall upon the request of an eligible State program and pursuant to a 
commitment to guarantee issued under subsection (b), provide a 
guarantee under subsection (d) for such eligible State program in the 
amount requested by such eligible State program, subject to the 
limitation under subsection (d)(2).
  (d) Catastrophic Debt Guarantee.--A debt guarantee under this 
subsection for an eligible State program shall be subject to the 
following requirements:
          (1) Preconditions.--The eligible State program shows to the 
        satisfaction of the Secretary that insured losses in the State 
        to the eligible State program arising from the event or events 
        covered by the commitment to guarantee are likely to exceed the 
        eligible State program's available cash resources, as 
        calculated on the date of the event.
          (2) Amount.--The aggregate principal amount of the debt 
        guaranteed following an event or events referred to in 
        paragraph (1) may not exceed the amount by which the insured 
        losses expected to be sustained by the State program as a 
        result of such event or events exceed 80 percent of the 
        qualifying assets of the eligible State program as stated in 
        the most recent quarterly financial statement filed with the 
        domiciliary regulator of the program prior to the event or 
        events, except that, for eligible State programs that are not 
        required to file such quarterly financial statements, the 
        aggregate principal amount of the debt guaranteed may not 
        exceed the amount by which insured losses sustained by the 
        State program as a result of such event or events exceed 80 
        percent of the unrestricted net assets as stated in the annual 
        financial statement for the program's fiscal year ending 
        immediately prior to the event or events.
          (3) Use of funds.--Amounts of debt guaranteed under this 
        section shall be used only to pay the costs of issuing debt and 
        to pay the insured losses and loss adjustment expenses incurred 
        by an eligible State program. Such amounts shall not be used 
        for any other purpose.
  (e) Funding.--There are authorized to be appropriated such sums as 
may be necessary to carry out this section.

SEC. 203. EFFECT OF GUARANTEE.

  The issuance of any guarantee by the Secretary under this title shall 
be conclusive evidence that--
          (1) the guarantee has been properly obtained;
          (2) the underlying debt qualified for such guarantee; and
          (3) the guarantee is valid, legal, and enforceable.

SEC. 204. FULL FAITH AND CREDIT.

  The full faith and credit of the United States is pledged to the 
payment of all guarantees issued under this title with respect to 
principal and interest.

SEC. 205. FEES FOR GUARANTEES; AMOUNT; COLLECTION.

  The Secretary shall charge and collect fees for each guarantee in 
amounts specified in the commitment to guarantee, which shall be in 
amounts sufficient in the judgment of the Secretary at the time of 
issuance of the commitment to guarantee to cover applicable 
administrative costs and probable losses on the guaranteed obligations 
covered by the commitment to guarantee, but in any event not to exceed 
one-half of 1 per centum per annum of the outstanding indebtedness 
covered by each guarantee.

SEC. 206. PAYMENT OF LOSSES.

  (a) In General.--The Secretary agrees to pay to the duly appointed 
paying agent or trustee (in this section referred to as the ``Fiscal 
Agent'') for the eligible State program that portion of the principal 
and interest on any debt guaranteed under this title that shall become 
due for payment but shall be unpaid by the eligible State program as a 
result of such program having provided insufficient funds to the Fiscal 
Agent to make such payments. The Secretary shall make such payments on 
the date such principal or interest becomes due for payment or on the 
business day next following the day on which the Secretary shall 
receive notice of failure on the part of the eligible State program to 
provide sufficient funds to the Fiscal Agent to make such payments, 
whichever is later. Upon making such payment, the Secretary shall be 
subrogated to all the rights of the ultimate recipient of the payment. 
The Secretary shall be entitled to recover from the eligible State 
program the amount of any payments made pursuant to any guarantee 
entered into under this title.
  (b) Role of the Attorney General.--The Attorney General shall take 
such action as may be appropriate to enforce any right accruing to the 
United States as a result of the issuance of any guarantee under this 
title.
  (c) Right of the Secretary.--Notwithstanding any other provision of 
law relating to the acquisition, handling, or disposal of property by 
the United States, the Secretary shall have the right in the discretion 
of the Secretary to complete, recondition, reconstruct, renovate, 
repair, maintain, operate, or sell any property acquired by the 
Secretary pursuant to the provisions of this title.

SEC. 207. REGULATIONS.

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

      TITLE III--REINSURANCE COVERAGE FOR ELIGIBLE STATE PROGRAMS

SEC. 301. PROGRAM AUTHORITY.

  The Secretary of the Treasury, shall make available for purchase, 
only by eligible State programs, contracts for reinsurance coverage 
under this title.

SEC. 302. CONTRACT PRINCIPLES.

  Contracts for reinsurance coverage made available under this title--
          (1) shall be priced on an actuarially sound basis;
          (2) shall minimize the administrative costs of the Federal 
        Government; and
          (3) shall provide coverage based solely on insured losses 
        covered by the eligible State program purchasing the contract.

SEC. 303. TERMS OF REINSURANCE CONTRACTS.

  (a) Minimum Attachment Point and Levels of Coverage.--The Secretary 
shall establish attachment points at which reinsurance coverage under 
this title is provided to eligible State programs. In setting 
attachment points and in determining the levels of reinsurance coverage 
provided, the Secretary shall take into consideration--
          (1) the coverage available through eligible State programs;
          (2) the availability and accessibility of reinsurance in the 
        private market; and
          (3) other factors as deemed appropriate by the Secretary.
  (b) Ninety Percent Coverage of Insured Losses in Excess of Retained 
Losses.--Each contract for reinsurance coverage under this title shall 
provide that the amount paid out under the contract shall be equal to 
90 percent of the amount of insured losses of the eligible State 
program in excess of the amount of retained losses that the contract 
requires, pursuant to subsection (a), to be incurred by such program.
  (c) Maturity.--The term of each contract for reinsurance coverage 
under this title shall not exceed 1 year or such other term as the 
Secretary may determine.
  (d) Payment Condition.--Each contract for reinsurance coverage under 
this title shall authorize claims payments to the eligible State 
program purchasing the coverage only for insured losses provided under 
the contract.
  (e) Multiple Events.--The contract shall cover any insured losses 
from one or more events that may occur during the term of the contract 
and shall provide that if multiple events occur, the retained losses 
requirement under subsection (a) shall apply on a calendar year basis, 
in the aggregate and not separately to each individual event.
  (f) Timing of Claims.--Claims under a contract for reinsurance 
coverage under this title shall include only insurance claims that are 
reported to the eligible State program within the 3-year period 
beginning upon the event or events for which payment under the contract 
is provided.
  (g) Actuarial Pricing.--The price of coverage under a reinsurance 
contract under this title shall be an amount, established by the 
Secretary at a level that annually produces expected premiums that 
shall be sufficient to pay the reasonably anticipated cost of all 
claims (which may not be equal only to average annual costs), loss 
adjustment expenses, all administrative costs of reinsurance coverage 
offered under this title, and any such outwards reinsurance, as 
described in section 305(c)(3), as the Secretary considers prudent 
taking into consideration the demand for reinsurance coverage under 
this title. The anticipated cost of all claims shall be comparable to 
amounts being included in the price for similar layers of coverage in 
the private sector, taking into account the savings associated with 
non-profit and tax-exempt status of the Fund established under section 
305.
  (h) Information.--Each contract for reinsurance coverage under this 
title shall contain a condition providing that the Secretary may 
require the eligible State program that is covered under the contract 
to submit to the Secretary all information on the eligible State 
program relevant to the duties of the Secretary under this title.
  (i) Others.--Contracts for reinsurance coverage under this title 
shall contain such other terms as the Secretary considers necessary to 
carry out this title and to ensure the long-term financial integrity of 
the program under this title.

SEC. 304. MAXIMUM FEDERAL LIABILITY.

  (a) In General.--Subject to subsection (b) and notwithstanding any 
other provision of law, the aggregate potential liability for payment 
of claims under all contracts for reinsurance coverage under this title 
sold in any single year shall be determined by the Secretary based on 
review of the market for reinsurance coverage under this title.
  (b) Limitation.--The authority of the Secretary to enter into 
contracts for reinsurance coverage under this title shall be effective 
for any fiscal year only to such extent or in such amounts as are or 
have been provided in appropriation Acts for such fiscal year for the 
aggregate potential liability for payment of claims under all contracts 
for reinsurance coverage under this title.

SEC. 305. FEDERAL NATURAL CATASTROPHE REINSURANCE FUND.

  (a) Establishment.--There is established within the Treasury of the 
United States a fund to be known as the Federal Natural Catastrophe 
Reinsurance Fund (in this section referred to as the ``Fund'').
  (b) Credits.--The Fund shall be credited with--
          (1) amounts received annually from the sale of contracts for 
        reinsurance coverage under this title;
          (2) any amounts appropriated for the aggregate potential 
        liability for payment of claims under all contracts for 
        reinsurance coverage under this title; and
          (3) any amounts earned on investments of the Fund pursuant to 
        subsection (d).
  (c) Uses.--Amounts in the Fund shall be available to the Secretary 
only for the following purposes:
          (1) Contract payments.--For payments to purchasers covered 
        under contracts for reinsurance coverage for eligible losses 
        under such contracts.
          (2) Administrative expenses.--To pay for the administrative 
        expenses incurred by the Secretary in carrying out the 
        reinsurance program under this title.
          (3) Outwards reinsurance.--To obtain retrocessional or other 
        reinsurance coverage of any kind to cover risk reinsured under 
        contracts for reinsurance coverage made available under this 
        title.
  (d) Investment.--The Secretary shall invest such amounts in the Fund 
as the Secretary considers advisable in obligations issued or 
guaranteed by the United States. For purposes of the grant mandate in 
section 401(e) for a fiscal year, the Secretary shall disclose the 
annual net investment income available not later than 60 days after the 
conclusion of such fiscal year and disperse appropriate funds not later 
than 90 days after the conclusion of such fiscal year.

SEC. 306. REGULATIONS.

  The Secretary shall issue any regulations necessary to carry out the 
program for reinsurance coverage under this title.

                   TITLE IV--MITIGATION GRANT PROGRAM

SEC. 401. MITIGATION GRANT PROGRAM.

  (a) Establishment.--The Secretary of Housing and Urban Development 
shall establish and carry out a program to provide grants to eligible 
entities to develop, enhance, or maintain programs to prevent and 
mitigate losses from natural catastrophes.
  (b) Grants.--A grant provided under subsection (a) shall be used to 
reduce loss of life and property by--
          (1) encouraging awareness of risk factors and what steps can 
        be taken to eliminate or reduce them, including public 
        education campaigns to promote citizen and community 
        preparedness;
          (2) assisting in the determination of the location of risk by 
        giving careful consideration to the natural risks for the 
        location of a property;
          (3) providing inspections of homes to identify areas to 
        strengthen such homes and reduce exposure to natural 
        catastrophes;
          (4) providing financial assistance to homeowners to retrofit 
        homes to reduce exposure to natural catastrophes; or
          (5) supporting disaster response readiness programs, 
        including initiatives that develop, enhance ,or maintain the 
        capacity of a public safety organization to be better prepared, 
        equipped, and trained to respond to natural catastrophes.
  (c) Consultation With Experts.--In carrying out the program 
established under subsection (a), the Secretary of Housing and Urban 
Development shall consult with--
          (1) disaster preparedness and response organizations;
          (2) homebuilders;
          (3) real estate professionals;
          (4) building code enforcement agencies; and
          (5) any other person that the Secretary considers 
        appropriate.
  (d) Eligible Entity Defined.--In this section, the term ``eligible 
entity'' means a State or local government, a part or program of a 
State or local government, or a nationally recognized, congressionally 
chartered disaster response non-profit organization.
  (e) Grant Mandate.--The Secretary shall, to the extent provided in 
advance in appropriation Acts, use not less than 35 percent of the net 
investment income from the Federal Natural Catastrophe Reinsurance Fund 
earned in each fiscal year pursuant to section 305(d) for grants under 
this section.

                      TITLE V--GENERAL PROVISIONS

SEC. 501. ELIGIBLE STATE PROGRAMS.

  (a) Eligible State Programs.--A State program shall be considered an 
``eligible State program'' for purposes of this Act if the Secretary 
certifies, in accordance with the procedures established under 
subsection (c), that the State program complies with the following 
requirements:
          (1) State program design.--The State program is established 
        and authorized by State law as an insurance program or a 
        reinsurance program that is designed to improve private 
        insurance markets and that offers residential property 
        insurance coverage for losses arising from any personal 
        residential line of insurance, as defined in the Uniform 
        Property and Casualty Product Coding Matrix of the National 
        Association of Insurance Commissioners.
          (2) Operation.--The State program shall meet the following 
        requirements:
                  (A) A majority of the members of the governing body 
                of the State program shall be public officials or 
                appointed by public officials.
                  (B) The State shall have a financial interest in the 
                State program.
                  (C) If the State has at any time appropriated amounts 
                from the State program's funds for any purpose other 
                than payments for losses insured under the State 
                program, or payments made in connection with any of the 
                State program's authorized activities, the State shall 
                have returned such amounts to the State fund, together 
                with interest on such amounts.
          (3) Tax status.--The State program shall have received from 
        the Secretary (or the Secretary's designee) a written 
        determination, within the meaning of section 6110(b) of the 
        Internal Revenue Code of 1986, that the program either--
                  (A) constitutes an ``integral part'' of the State 
                that has created it; or
                  (B) is otherwise exempt from Federal income taxation.
          (4) Earnings.--The State program may not provide for any 
        distribution of any part of any net profits of the State 
        program to any insurer that participates in the State program.
          (5) Prevention and mitigation.--
                  (A) Mitigation of losses.--The State program shall 
                include provisions designed to encourage and support 
                programs to mitigate losses from natural catastrophes 
                for which the State insurance or reinsurance program 
                was established to provide insurance coverage.
                  (B) Operational requirements.--The State program 
                shall operate in a State that--
                          (i) requires that an appropriate public body 
                        within the State shall have adopted adequate 
                        mitigation measures with effective enforcement 
                        provisions which the Secretary finds are 
                        consistent with the criteria for construction 
                        described in the International Code Council 
                        building codes;
                          (ii) has taken actions to establish an 
                        insurance rate structure that takes into 
                        account measures to mitigate insured losses; 
                        and
                          (iii) ensures, to the extent that reinsurance 
                        coverage made available under the eligible 
                        State program results in any cost savings in 
                        providing insurance coverage for risks in such 
                        State, such cost savings are reflected in 
                        premium rates charged to consumers for such 
                        coverage.
          (6) Requirements regarding coverage.--The State program--
                  (A) may not, except for charges or assessments 
                related to post-event financing or bonding, involve 
                cross-subsidization between any separate property and 
                casualty insurance lines covered under the State 
                program pursuant to paragraph (1);
                  (B) shall be subject to a requirement under State law 
                that for any insurance coverage made available under 
                the State insurance program or for any reinsurance 
                coverage for such insurance coverage made available 
                under the State reinsurance program, the premium rates 
                charged shall cover the expected value of all future 
                costs associated with insurance policies or reinsurance 
                contracts written by such program, in accordance with 
                the principles under section 303(g);
                  (C) shall make available to all qualifying 
                policyholders insurance or reinsurance coverage, as 
                applicable, and mitigation services on a basis that is 
                not unfairly discriminatory; and
                  (D) publishes, and displays in a prominent location 
                on a Website for the State insurance program, 
                information for the State insurance program of 
                estimated assessments and surcharges on policyholders, 
                in accordance with State laws, regulations, or other 
                requirements, for a range of natural disaster or 
                catastrophic events having a varying magnitude of 
                losses, including an event projected to result in 
                losses of such magnitude that they have a 1 percent 
                chance of being equaled or exceeded in any single year, 
                based on the current year estimated aggregate funding 
                capacity of the State insurance program and State 
                reinsurance program.
          (7) Land use and zoning.--The State program, to the extent 
        possible, seeks to encourage appropriate State and local 
        government units to develop comprehensive land use and zoning 
        plans that include natural hazard mitigation.
          (8) Risk-based capital requirements.--The State program--
                  (A) complies with such risk-based capital 
                requirements as applicable State law may impose and 
                shall take into consideration asset risk, credit risk, 
                underwriting risk, and such other relevant risk as 
                determined by the Secretary; and
                  (B) for each calendar year, prepares and submits to 
                the Secretary a report identifying its claim-paying 
                capacity at such time after the conclusion of such 
                year, and containing such information and in such form, 
                as the Secretary shall require.
          (9) Other requirements.--The State program complies with such 
        additional organizational, underwriting, and financial 
        requirements as the Secretary shall, by regulation, provide to 
        carry out the purposes of this Act.
  (b) Certification.--The Secretary shall establish procedures for 
initial certification and recertification as an eligible State program.
  (c) Transitional Mechanisms.--For the 5-year period beginning on the 
date of the enactment of this Act, in the case of a State that does not 
have an eligible State program for the State, a State residual 
insurance market entity, or State-sponsored provider of natural 
catastrophe insurance, for such State shall be considered to be an 
eligible State program, but only if such State residual insurance 
market entity, or State-sponsored provider of natural catastrophe 
insurance, was in existence before such date of enactment.
  (d) Reinsurance to Cover Exposure.--This section may not be construed 
to limit or prevent any eligible State program from obtaining 
reinsurance coverage for insured losses retained by insurers pursuant 
to this section.

SEC. 502. STUDY AND CONDITIONAL COVERAGE OF COMMERCIAL RESIDENTIAL 
                    LINES OF INSURANCE.

  The Secretary shall study, on an expedited basis, the need for and 
impact of expanding the programs established by this Act to apply to 
insured losses of eligible State programs for losses arising from all 
commercial insurance policies which provide coverage for properties 
that are composed predominantly of residential rental units. The 
Secretary shall consider the catastrophic insurance and reinsurance 
market for commercial residential properties, and specifically the 
availability of adequate private insurance coverage when an insured 
event occurs, the impact any such capacity restrictions have on housing 
affordability for renters, and the likelihood that such an expansion of 
the program would increase insurance capacity for this market segment.

SEC. 503. STUDY OF RISK-BASED PRICING AND STATE PROGRAM RATES.

  The Comptroller General of the United States shall conduct a study to 
analyze--
          (1) risk-based rate pricing, to determine the use of 
        actuarially sound pricing for State insurance, reinsurance, or 
        residual market programs, including what measures States are 
        taking to implement actuarially sound rates; and
          (2) rates for State insurance, reinsurance, or residual 
        market programs that fail to cover the expected value of all 
        future costs, including the cost of capital, associated with 
        insurance policies or reinsurance contracts written by such 
        programs or fail to have sufficient assets above their 
        indebtedness to meet their obligations.
Not later than 6 months after the date of the enactment of this Act, 
the Comptroller General shall submit a report to the Congress on the 
results of the study under this section.

SEC. 504. DEFINITIONS.

  In this Act:
          (1) Commitment to guarantee.--The term ``commitment to 
        guarantee'' means a commitment to make debt guarantees to an 
        eligible State program pursuant to section 202(c).
          (2) Eligible state program.--The term ``eligible State 
        program'' means a State program that the Secretary certifies as 
        an eligible State program under section 501.
          (3) Insured loss.--The term ``insured loss'' means any loss 
        that is determined by an eligible State program as being 
        covered by insurance or reinsurance made available under that 
        eligible State program.
          (4) Qualifying assets.--The term ``qualifying assets'' means 
        the policyholder surplus of the eligible State program as 
        stated in the most recent quarterly financial statement filed 
        by the program with the domiciliary regulator of the program in 
        the last quarter ending prior to the event or events.
          (5) Secretary.--The term ``Secretary'' means the Secretary of 
        the Treasury.
          (6) State.--The term ``State'' includes the several States, 
        the District of Columbia, the Commonwealth of Puerto Rico, 
        Guam, the Commonwealth of the Northern Mariana Islands, the 
        United States Virgin Islands, and American Samoa, and any other 
        territory or possession of the United States.

SEC. 505. REGULATIONS.

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

                          PURPOSE AND SUMMARY

    H.R. 2555, the Homeowners' Defense Act of 2010, addresses 
the issues of homeowners' insurance affordability and 
availability by: (1) fostering the efficient transfer of 
natural catastrophe risk equitably throughout the private 
insurance marketplace and the broader capital markets; and (2) 
helping homeowners and communities prepare for and recover from 
catastrophic natural catastrophes. As both efficient risk 
transfer and aggressive mitigation are equally vital to any 
attempt to stabilize the homeowners' insurance marketplace, the 
Homeowners' Defense Act includes three different, though 
related, means of risk transfer that each require participating 
States to maintain reasonable, market-based underwriting 
practices and require individuals and communities to commit to 
and maintain mitigation efforts identified as effective in 
reducing losses following a natural catastrophe.

                  BACKGROUND AND NEED FOR LEGISLATION

    The increasing costs of natural catastrophes have 
significantly stressed property and casualty insurance markets, 
particularly the homeowners' insurance market. This market 
stress is due in large part to the fact that participants in 
the insurance marketplace have the most experience with and are 
best prepared to deal with high-frequency, low-severity events. 
In contrast, catastrophic events, and particularly mega-
catastrophes, such as the recent earthquakes in Chile and Haiti 
and hurricanes like Katrina, are low-frequency, high-severity 
events that violate standard loss models by affecting many 
insured exposures at one time and subject insurers to near 
unsustainable losses in a given year.
    Insurance markets tend to respond adversely to mega-
catastrophes. They respond to large events, particularly those 
that cause them to reevaluate their estimates of the 
probability and severity of loss, by restricting the supply of 
insurance and raising the price of the limited coverage that is 
made available. This occurred, for example, following Hurricane 
Andrew in 1992 and the Northridge earthquake in 1994.
    Successive, increasingly expensive natural disasters have 
caused insurance companies to reexamine their business models 
for insuring natural disasters. This process has resulted in 
insurers and reinsurers pulling out of or reducing their 
portfolios in certain areas of the country. This resulting 
insurance capacity loss has caused homeowners insurance rates 
to spike from 100 percent to over 600 percent in certain 
higher-risk areas and left many areas of the country without 
effectively functioning private insurance markets.
    The programs created in Titles I-V of H.R. 2555 work 
together to help smooth post-incident spikes in the homeowners' 
insurance marketplace and protect consumers from the financial 
devastation that can result from natural catastrophes.
    The first method by which the Homeowners' Defense Act 
facilitates the transfer of insurance risk into the private 
capital and reinsurance markets is through the creation of the 
National Catastrophe Risk Consortium, an organization that 
States can voluntarily join for the purposes of transferring 
catastrophe risk. Risk transfer would be achieved through the 
issuance of risk-linked securities or through reinsurance 
contracts. Eligible State insurance programs are defined in 
Title V of the legislation (see below). The Consortium is 
designed to function as a conduit, so that at no time would 
actual risk transfer either to or from the Federal Government.
    The Consortium offers States and private market 
participants a unique opportunity to benefit from a combining 
of catastrophic risk diversified by type of peril and 
geographic region. The Consortium staff will work in 
coordination with participating States to catalogue inventories 
of catastrophic risk. Catastrophe bond underwriters and other 
market participants will be able to access this database to 
structure bonds or reinsurance contracts and treaties. The 
Consortium will serve as a conduit issuer of catastrophe bonds 
on behalf of the participating States, but not actually take 
possession of any bond proceeds, coupon payments or underlying 
risk.
    Through the aggregation and maintenance of market 
statistics, the Consortium will develop industry standards for 
the catastrophe bond and risk transference markets. Such 
standards include but are not limited to the terms of bond 
offerings, the nature of triggers used and the definitions of 
risks.
    The Consortium would be governed by a board comprised of 
Federal and State representatives with each member having a 
single vote. The Consortium would be jointly funded by the 
Federal government and participating States. A minimal Federal 
appropriation will be matched by State obligations prorated 
according to each State's participation in the Consortium.
    The legislation authorizes $20 billion for Fiscal Years 
2010 through 2014 to carry out Title I.
    The second method by which the Homeowners' Defense Act 
facilitates risk transfer into the private capital markets is 
the Catastrophe Obligation Program created in Title II of the 
bill. Title II permits the Treasury to offer to holders of the 
debt of State catastrophe insurance or reinsurance programs a 
guarantee that principal and interest on the debt will be paid. 
Treasury may guarantee a total of up to: (1) $3.5 billion for 
programs that insure against earthquake loss; and (2) $17 
billion for programs that insure against all other natural 
disasters. These Treasury guarantees cover a period of three 
years that at each anniversary may be extended for a period of 
one year (not to exceed 30 years in total). The principal 
amount guaranteed for an individual State program may be up to 
the total amount of insured losses sustained by the State 
program less 80 percent of the State program's capital as 
stated in the State program's last quarterly report. Treasury 
may charge a fee to cover administrative costs and probable 
losses on the guarantee that does not exceed one half of one 
percent of the outstanding debt guaranteed. Treasury may 
recover any payments made on guarantees from the appropriate 
State program.
    In order to request a guarantee, at the time of a request 
for a guarantee and annually on request for extension, a State 
program must submit a report describing how the State program 
plans to repay the debt. Before providing any guarantee, the 
Treasury must review the State program's debt repayment report, 
verify that the State program is in compliance with the 
guarantee program's underwriting and loss mitigation 
requirements, and assure the State program agrees not to use 
any Federal funds to repay the underlying guaranteed debt.
    In Title III, the Homeowners' Defense Act establishes the 
Federal Natural Catastrophe Reinsurance Fund in the Department 
of the Treasury. Qualified reinsurance programs can purchase 
one-year reinsurance contracts from the Fund provided the 
coverage does not displace or compete with the private market. 
The Fund can enter into reinsurance contracts for any band of 
reinsurance coverage that responds to losses in excess of the 
certain amount of loss as defined in the legislation. Of the 
insured losses in excess of this amount, the reinsurance 
contract will pay 90 percent.
    The contracts shall cover insured losses from one or more 
events that may occur during the term of the contract and shall 
provide that if multiple events do occur, the retained losses 
requirement shall apply on a calendar year basis in the 
aggregate. The contracts shall be priced at a level that 
provides sufficient premium income to the fund to pay the 
reasonably anticipated cost of all claims, including those 
resulting from catastrophic natural disasters, and 
administrative expenses.
    The aggregate liability for payment of claims under 
reinsurance contracts the Fund can assume is determined by the 
Secretary after assessing the availability of needed 
catastrophic coverage in the national and international 
marketplace. The Fund can be credited with amounts received 
from the sale of reinsurance contracts, and amounts earned on 
investments of the Fund.
    The Secretary can use amounts in the Fund to pay purchasers 
covered under contracts for reinsurance, administrative 
expenses and payments for reinsurance coverage of the risk 
assumed by the Fund in reinsurance contracts. Should the Fund 
issue obligations to pay claims, all such obligations must be 
repaid with interest paid in the form of premiums charged to 
purchasers of reinsurance contracts. If the Fund is deemed by 
the Secretary to have funds in excess of current needs, the 
excess may be invested in obligations of the United States. No 
money is appropriated for the operation of the Fund.
    Finally, Title IV authorizes the Secretary of Housing and 
Urban Development to establish a grant program to develop, 
enhance and maintain State or local government programs that 
relate to prevention and mitigation of losses from natural 
catastrophes. Such programs focus on: (1) encouraging awareness 
of risk factors and steps taken to reduce or eliminate them; 
(2) assisting in the determination of risk based on location of 
a property; (3) providing inspections of homes; (4) providing 
financial assistance to retrofit homes to reduce exposure to 
loss; and (5) supporting disaster response readiness programs. 
Title IV directs the Secretary to use no less than 35 percent 
of the net investment income from the Federal Natural 
Catastrophe Reinsurance Fund earned in each fiscal year for 
funding.

                                HEARINGS

    The Subcommittee on Housing and Community Opportunity and 
the Subcommittee on Capital Markets, Insurance, and Government 
Sponsored Enterprises held a joint legislative hearing entitled 
``Approaches to Mitigating and Managing Natural Catastrophe 
Risk: H.R. 2555, The Homeowners' Defense Act'' on Wednesday, 
March 10, 2010. The following witnesses testified:

Hearing Witnesses

           Mr. James Lee Witt, former Director of the 
        Federal Emergency Management Agency on behalf of 
        Protect-ingAmerica.org
           Mr. Glenn Pomeroy, Chief Executive Officer, 
        California Earthquake Authority
           Mr. Steve Ellis, Vice President, Taxpayers 
        for Common Sense
           Mr. Charles McMillan, Coldwell Banker 
        Residential Brokerage, Dallas-Fort Worth and Immediate 
        Past President, National Association of REALTORS

                        COMMITTEE CONSIDERATION

    The Committee on Financial Services met in open session on 
April 27, 2010, and ordered H.R. 2555, the Homeowners' Defense 
Act of 2009, as amended, favorably reported to the House by a 
record vote of 39 yeas and 26 nays.

                            COMMITTEE VOTES

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. A 
motion by Mr. Frank to report the bill, as amended, to the 
House with a favorable recommendation was agreed to by a record 
vote of 39 yeas and 26 nays (Record vote no. FC-115). The names 
of Members voting for and against follow:

                                             RECORD VOTE NO. FC-115
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................        X   ........  .........  Mr. Bachus.......  ........        X   .........
Mr. Kanjorski..................        X   ........  .........  Mr. Castle.......  ........        X   .........
Ms. Waters.....................        X   ........  .........  Mr. King (NY)....  ........        X   .........
Mrs. Maloney...................        X   ........  .........  Mr. Royce........  ........        X   .........
Mr. Gutierrez..................  ........  ........  .........  Mr. Lucas........  ........        X   .........
Ms. Velazquez..................        X   ........  .........  Mr. Paul.........  ........        X   .........
Mr. Watt.......................        X   ........  .........  Mr. Manzullo.....  ........        X   .........
Mr. Ackerman...................        X   ........  .........  Mr. Jones........  ........        X   .........
Mr. Sherman....................        X   ........  .........  Mrs. Biggert.....  ........        X   .........
Mr. Meeks......................        X   ........  .........  Mr. Miller (CA)..  ........        X   .........
Mr. Moore (KS).................        X   ........  .........  Mrs. Capito......  ........        X   .........
Mr. Capuano....................        X   ........  .........  Mr. Hensarling...  ........  ........  .........
Mr. Hinojosa...................        X   ........  .........  Mr. Garrett (NJ).  ........        X   .........
Mr. Clay.......................        X   ........  .........  Mr. Barrett (SC).  ........  ........  .........
Mrs. McCarthy..................        X   ........  .........  Mr. Gerlach......  ........        X   .........
Mr. Baca.......................        X   ........  .........  Mr. Neugebauer...  ........        X   .........
Mr. Lynch......................        X   ........  .........  Mr. Price (GA)...  ........  ........  .........
Mr. Miller (NC)................        X   ........  .........  Mr. McHenry......  ........        X   .........
Mr. Scott......................        X   ........  .........  Mr. Campbell.....        X   ........  .........
Mr. Green......................        X   ........  .........  Mr. Putnam.......        X   ........  .........
Mr. Cleaver....................        X   ........  .........  Mrs. Bachmann....  ........        X   .........
Ms. Bean.......................        X   ........  .........  Mr. Marchant.....  ........        X   .........
Ms. Moore (WI).................  ........  ........  .........  Mr. McCotter.....  ........        X   .........
Mr. Hodes......................  ........  ........  .........  Mr. McCarthy.....  ........        X   .........
Mr. Ellison....................        X   ........  .........  Mr. Posey........        X   ........  .........
Mr. Klein......................        X   ........  .........  Ms. Jenkins......  ........        X   .........
Mr. Wilson.....................        X   ........  .........  Mr. Lee..........  ........        X   .........
Mr. Perlmutter.................        X   ........  .........  Mr. Paulsen......  ........        X   .........
Mr. Donnelly...................        X   ........  .........  Mr. Lance........  ........        X   .........
Mr. Foster.....................        X   ........  .........
Mr. Carson.....................        X   ........  .........
Ms. Speier.....................        X   ........  .........
Mr. Childers...................        X   ........  .........
Mr. Minnick....................        X   ........  .........
Mr. Adler......................        X   ........  .........
Ms. Kilroy.....................  ........        X   .........
Mr. Driehaus...................  ........        X   .........
Ms. Kosmas.....................        X   ........  .........
Mr. Grayson....................        X   ........  .........
Mr. Himes......................  ........        X   .........
Mr. Peters.....................        X   ........  .........
Mr. Maffei.....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

    During the consideration of the bill, the following 
amendments were disposed of by record votes. The names of 
Members voting for and against follow:
    An amendment in the nature of a substitute offered by Mrs. 
Capito (and Mr. Garrett (NJ)), was not agreed to by a record 
vote of 24 yeas and 42 nays (Record vote no. FC-111):

                                             RECORD VOTE NO. FC-111
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................  ........        X   .........  Mr. Bachus.......        X   ........  .........
Mr. Kanjorski..................  ........        X   .........  Mr. Castle.......        X   ........  .........
Ms. Waters.....................  ........        X   .........  Mr. King (NY)....        X   ........  .........
Mrs. Maloney...................  ........        X   .........  Mr. Royce........        X   ........  .........
Mr. Gutierrez..................  ........  ........  .........  Mr. Lucas........        X   ........  .........
Ms. Velazquez..................  ........        X   .........  Mr. Paul.........        X   ........  .........
Mr. Watt.......................  ........        X   .........  Mr. Manzullo.....        X   ........  .........
Mr. Ackerman...................  ........        X   .........  Mr. Jones........        X   ........  .........
Mr. Sherman....................  ........        X   .........  Mrs. Biggert.....        X   ........  .........
Mr. Meeks......................  ........        X   .........  Mr. Miller (CA)..        X   ........  .........
Mr. Moore (KS).................  ........        X   .........  Mrs. Capito......        X   ........  .........
Mr. Capuano....................  ........        X   .........  Mr. Hensarling...        X   ........  .........
Mr. Hinojosa...................  ........        X   .........  Mr. Garrett (NJ).        X   ........  .........
Mr. Clay.......................  ........        X   .........  Mr. Barrett (SC).  ........  ........  .........
Mrs. McCarthy..................  ........        X   .........  Mr. Gerlach......        X   ........  .........
Mr. Baca.......................  ........        X   .........  Mr. Neugebauer...        X   ........  .........
Mr. Lynch......................  ........        X   .........  Mr. Price (GA)...  ........  ........  .........
Mr. Miller (NC)................  ........        X   .........  Mr. McHenry......        X   ........  .........
Mr. Scott......................  ........        X   .........  Mr. Campbell.....  ........        X   .........
Mr. Green......................  ........        X   .........  Mr. Putnam.......  ........        X   .........
Mr. Cleaver....................  ........        X   .........  Mrs. Bachmann....        X   ........  .........
Ms. Bean.......................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Ms. Moore (WI).................  ........  ........  .........  Mr. McCotter.....        X   ........  .........
Mr. Hodes......................  ........  ........  .........  Mr. McCarthy.....        X   ........  .........
Mr. Ellison....................  ........        X   .........  Mr. Posey........  ........        X   .........
Mr. Klein......................  ........        X   .........  Ms. Jenkins......        X   ........  .........
Mr. Wilson.....................  ........        X   .........  Mr. Lee..........        X   ........
Mr. Perlmutter.................  ........        X   .........  Mr. Paulsen......        X   ........  .........
Mr. Donnelly...................  ........        X   .........  Mr. Lance........        X   ........  .........
Mr. Foster.....................  ........        X   .........
Mr. Carson.....................  ........        X   .........
Ms. Speier.....................  ........        X   .........
Mr. Childers...................  ........        X   .........
Mr. Minnick....................  ........        X   .........
Mr. Adler......................  ........        X   .........
Ms. Kilroy.....................  ........        X   .........
Mr. Driehaus...................  ........        X   .........
Ms. Kosmas.....................  ........        X   .........
Mr. Grayson....................  ........        X   .........
Mr. Himes......................  ........        X   .........
Mr. Peters.....................  ........        X   .........
Mr. Maffei.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Royce, no. 4, striking title III 
relating to reinsurance coverage for eligible State programs, 
was not agreed to by a record vote of 27 yeas and 38 nays 
(Record vote no. FC-112):

                                             RECORD VOTE NO. FC-112
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................  ........        X   .........  Mr. Bachus.......        X   ........  .........
Mr. Kanjorski..................  ........        X   .........  Mr. Castle.......        X   ........  .........
Ms. Waters.....................  ........        X   .........  Mr. King (NY)....        X   ........  .........
Mrs. Maloney...................  ........        X   .........  Mr. Royce........        X   ........  .........
Mr. Gutierrez..................  ........  ........  .........  Mr. Lucas........        X   ........  .........
Ms. Velazquez..................  ........        X   .........  Mr. Paul.........        X   ........  .........
Mr. Watt.......................  ........        X   .........  Mr. Manzullo.....        X   ........  .........
Mr. Ackerman...................  ........        X   .........  Mr. Jones........        X   ........  .........
Mr. Sherman....................  ........        X   .........  Mrs. Biggert.....        X   ........  .........
Mr. Meeks......................  ........        X   .........  Mr. Miller (CA)..        X   ........  .........
Mr. Moore (KS).................  ........        X   .........  Mrs. Capito......        X   ........  .........
Mr. Capuano....................  ........        X   .........  Mr. Hensarling...  ........  ........  .........
Mr. Hinojosa...................  ........        X   .........  Mr. Garrett (NJ).        X   ........  .........
Mr. Clay.......................  ........        X   .........  Mr. Barrett (SC).  ........  ........  .........
Mrs. McCarthy..................  ........        X   .........  Mr. Gerlach......        X   ........  .........
Mr. Baca.......................  ........        X   .........  Mr. Neugebauer...        X   ........  .........
Mr. Lynch......................  ........        X   .........  Mr. Price (GA)...  ........  ........  .........
Mr. Miller (NC)................  ........        X   .........  Mr. McHenry......        X   ........  .........
Mr. Scott......................  ........        X   .........  Mr. Campbell.....        X   ........  .........
Mr. Green......................  ........        X   .........  Mr. Putnam.......        X   ........  .........
Mr. Cleaver....................  ........        X   .........  Mrs. Bachmann....        X   ........  .........
Ms. Bean.......................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Ms. Moore (WI).................  ........  ........  .........  Mr. McCotter.....        X   ........  .........
Mr. Hodes......................  ........  ........  .........  Mr. McCarthy.....        X   ........  .........
Mr. Ellison....................  ........        X   .........  Mr. Posey........        X   ........  .........
Mr. Klein......................  ........        X   .........  Ms. Jenkins......        X   ........  .........
Mr. Wilson.....................  ........        X   .........  Mr. Lee..........        X   ........  .........
Mr. Perlmutter.................  ........        X   .........  Mr. Paulsen......        X   ........  .........
Mr. Donnelly...................  ........        X   .........  Mr. Lance........        X   ........  .........
Mr. Foster.....................  ........        X   .........
Mr. Carson.....................  ........        X   .........
Ms. Speier.....................  ........        X   .........
Mr. Childers...................  ........        X   .........
Mr. Minnick....................  ........        X   .........
Mr. Adler......................  ........        X   .........
Ms. Kilroy.....................  ........        X   .........
Mr. Driehaus...................  ........        X   .........
Ms. Kosmas.....................  ........        X   .........
Mr. Grayson....................  ........        X   .........
Mr. Himes......................        X   ........  .........
Mr. Peters.....................  ........        X   .........
Mr. Maffei.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Garrett (NJ), no. 6, relating to the 
effective date, was not agreed to by a record vote of 24 yeas 
and 41 nays (Record vote no. FC-113):

                                             RECORD VOTE NO. FC-113
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................  ........        X   .........  Mr. Bachus.......        X   ........  .........
Mr. Kanjorski..................  ........        X   .........  Mr. Castle.......        X   ........  .........
Ms. Waters.....................  ........        X   .........  Mr. King (NY)....        X   ........  .........
Mrs. Maloney...................  ........        X   .........  Mr. Royce........        X   ........  .........
Mr. Gutierrez..................  ........  ........  .........  Mr. Lucas........        X   ........  .........
Ms. Velazquez..................  ........        X   .........  Mr. Paul.........        X   ........  .........
Mr. Watt.......................  ........        X   .........  Mr. Manzullo.....        X   ........  .........
Mr. Ackerman...................  ........        X   .........  Mr. Jones........        X   ........  .........
Mr. Sherman....................  ........        X   .........  Mrs. Biggert.....        X   ........  .........
Mr. Meeks......................  ........        X   .........  Mr. Miller (CA)..        X   ........  .........
Mr. Moore (KS).................  ........        X   .........  Mrs. Capito......        X   ........  .........
Mr. Capuano....................  ........        X   .........  Mr. Hensarling...  ........  ........  .........
Mr. Hinojosa...................  ........        X   .........  Mr. Garrett (NJ).        X   ........  .........
Mr. Clay.......................  ........        X   .........  Mr. Barrett (SC).  ........  ........  .........
Mrs. McCarthy..................  ........        X   .........  Mr. Gerlach......        X   ........  .........
Mr. Baca.......................  ........        X   .........  Mr. Neugebauer...        X   ........  .........
Mr. Lynch......................  ........        X   .........  Mr. Price (GA)...  ........  ........  .........
Mr. Miller (NC)................  ........        X   .........  Mr. McHenry......        X   ........  .........
Mr. Scott......................  ........        X   .........  Mr. Campbell.....  ........        X   .........
Mr. Green......................  ........        X   .........  Mr. Putnam.......  ........        X   .........
Mr. Cleaver....................  ........        X   .........  Mrs. Bachmann....        X   ........  .........
Ms. Bean.......................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Ms. Moore (WI).................  ........  ........  .........  Mr. McCotter.....        X   ........  .........
Mr. Hodes......................  ........  ........  .........  Mr. McCarthy.....        X   ........  .........
Mr. Ellison....................  ........        X   .........  Mr. Posey........        X   ........  .........
Mr. Klein......................  ........        X   .........  Ms. Jenkins......        X   ........  .........
Mr. Wilson.....................  ........        X   .........  Mr. Lee..........        X   ........  .........
Mr. Perlmutter.................  ........        X   .........  Mr. Paulsen......        X   ........  .........
Mr. Donnelly...................  ........        X   .........  Mr. Lance........        X   ........  .........
Mr. Foster.....................  ........        X   .........
Mr. Carson.....................  ........        X   .........
Ms. Speier.....................  ........        X   .........
Mr. Childers...................  ........        X   .........
Mr. Minnick....................  ........        X   .........
Mr. Adler......................  ........        X   .........
Ms. Kilroy.....................  ........        X   .........
Mr. Driehaus...................  ........        X   .........
Ms. Kosmas.....................  ........        X   .........
Mr. Grayson....................  ........        X   .........
Mr. Himes......................  ........        X   .........
Mr. Peters.....................  ........        X   .........
Mr. Maffei.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    An amendment by Mr. Neugebauer, no. 10, relating to the 
effective date of catastrophe obligation guarantee and 
reinsurance programs, was not agreed to by a record vote of 22 
yeas and 43 nays (Record vote no. FC-114):

                                             RECORD VOTE NO. FC-114
----------------------------------------------------------------------------------------------------------------
         Representative             Aye       Nay     Present     Representative      Aye       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Frank......................  ........        X   .........  Mr. Bachus.......        X   ........  .........
Mr. Kanjorski..................  ........        X   .........  Mr. Castle.......        X   ........  .........
Ms. Waters.....................  ........        X   .........  Mr. King (NY)....  ........        X   .........
Mrs. Maloney...................  ........        X   .........  Mr. Royce........        X   ........  .........
Mr. Gutierrez..................  ........  ........  .........  Mr. Lucas........        X   ........  .........
Ms. Velazquez..................  ........        X   .........  Mr. Paul.........        X   ........  .........
Mr. Watt.......................  ........        X   .........  Mr. Manzullo.....        X   ........  .........
Mr. Ackerman...................  ........        X   .........  Mr. Jones........        X   ........  .........
Mr. Sherman....................  ........        X   .........  Mrs. Biggert.....        X   ........  .........
Mr. Meeks......................  ........        X   .........  Mr. Miller (CA)..        X   ........  .........
Mr. Moore (KS).................  ........        X   .........  Mrs. Capito......        X   ........  .........
Mr. Capuano....................  ........        X   .........  Mr. Hensarling...  ........  ........  .........
Mr. Hinojosa...................  ........        X   .........  Mr. Garrett (NJ).        X   ........  .........
Mr. Clay.......................  ........        X   .........  Mr. Barrett (SC).  ........  ........  .........
Mrs. McCarthy..................  ........        X   .........  Mr. Gerlach......        X   ........  .........
Mr. Baca.......................  ........        X   .........  Mr. Neugebauer...        X   ........  .........
Mr. Lynch......................  ........        X   .........  Mr. Price (GA)...  ........  ........  .........
Mr. Miller (NC)................  ........        X   .........  Mr. McHenry......        X   ........  .........
Mr. Scott......................  ........        X   .........  Mr. Campbell.....  ........        X   .........
Mr. Green......................  ........        X   .........  Mr. Putnam.......  ........        X   .........
Mr. Cleaver....................  ........        X   .........  Mrs. Bachmann....        X   ........  .........
Ms. Bean.......................  ........        X   .........  Mr. Marchant.....        X   ........  .........
Ms. Moore (WI).................  ........  ........  .........  Mr. McCotter.....        X   ........  .........
Mr. Hodes......................  ........  ........  .........  Mr. McCarthy.....        X   ........  .........
Mr. Ellison....................  ........        X   .........  Mr. Posey........  ........        X   .........
Mr. Klein......................  ........        X   .........  Ms. Jenkins......        X   ........  .........
Mr. Wilson.....................  ........        X   .........  Mr. Lee..........        X   ........  .........
Mr. Perlmutter.................  ........        X   .........  Mr. Paulsen......        X   ........  .........
Mr. Donnelly...................  ........        X   .........  Mr. Lance........        X   ........  .........
Mr. Foster.....................  ........        X   .........
Mr. Carson.....................  ........        X   .........
Ms. Speier.....................  ........        X   .........
Mr. Childers...................  ........        X   .........
Mr. Minnick....................  ........        X   .........
Mr. Adler......................  ........        X   .........
Ms. Kilroy.....................  ........        X   .........
Mr. Driehaus...................  ........        X   .........
Ms. Kosmas.....................  ........        X   .........
Mr. Grayson....................  ........        X   .........
Mr. Himes......................  ........        X   .........
Mr. Peters.....................  ........        X   .........
Mr. Maffei.....................  ........        X   .........
----------------------------------------------------------------------------------------------------------------

    The following other amendments were also considered by the 
Committee:
    An amendment by Mr. Putnam, no. 2, requiring publishing and 
display of State coverage information on Website, was agreed to 
by a voice vote.
    An amendment by Mr. Minnick, no. 3, precluding properties 
in the 100 year floodplain from being eligible for debt 
guarantees, was offered and withdrawn, then later re-offered as 
amendment no. 5, and was then agreed to by a voice vote.
    An amendment by Mr. Putnam, no. 7, requiring State law to 
sue catastrophe loan comparable to private market, risk-based 
rate pricing, and actuarial principles, was offered and 
withdrawn.
    An amendment by Mr. Campbell, no. 8, regarding future costs 
associated with insurance and reinsurance contracts, was agreed 
to by a voice vote.
    An amendment by Mr. Minnick, no. 9, stating that debt 
guarantees cannot be applied to properties within the Coastal 
Barrier Resources System, was offered and withdrawn.
    An amendment by Mrs. Bachmann, no. 11, relating to 
prohibition on election and lobbying activities, was amended by 
unanimous consent and then agreed to by a voice vote.
    An amendment by Mrs. Bachmann, no. 12, relating to the 
repeal of the Act, was not agreed to by a voice vote.
    An amendment by Mr. Campbell, no. 13, to lower earthquake 
perils and all other perils coverage, was amended by unanimous 
consent and then agreed to by a voice vote.
    An amendment by Mr. Campbell, no. 14, relating to working 
capital requirement, was offered and withdrawn.
    An amendment by Mr. Klein, no. 15, a manager's amendment, 
was agreed to by a voice vote.

                      COMMITTEE OVERSIGHT FINDINGS

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held a hearing and 
made findings that are reflected in this report.

                    PERFORMANCE GOALS AND OBJECTIVES

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    H.R. 2555, the Homeowners' Defense Act of 2010, would 
address the issues of homeowners insurance affordability and 
availability by: (1) fostering the efficient transfer of 
natural catastrophe risk equitably throughout the private 
insurance marketplace and the broader capital markets; and (2) 
help homeowners and communities prepare for and recover from 
catastrophic natural catastrophes.

   NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX EXPENDITURES

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        COMMITTEE COST ESTIMATE

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  CONGRESSIONAL BUDGET OFFICE ESTIMATE

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, June 2, 2010.
Hon. Barney Frank,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2555, the 
Homeowners' Defense Act of 2010.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Daniel 
Hoople.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 2555--Homeowners' Defense Act of 2010

    Summary: H.R. 2555 is aimed at increasing the availability 
and affordability of homeowners' insurance by improving the 
ability of certain state-sponsored insurers and reinsurers to 
access resources to pay claims following a natural disaster. 
Based on data from state-sponsored entities that would likely 
be eligible to participate in the new federal programs and 
historical expenditure patterns for disaster mitigation 
programs, CBO estimates that implementing this legislation 
would cost $1.7 billion over the 2011-2015 period, assuming 
appropriation of the necessary amounts beginning in 2011.
    The legislation would authorize appropriations to establish 
a federal disaster reinsurance program. Reinsurance is 
insurance for insurers (or other reinsurers); it allows 
insurance programs to transfer risk to other entities. Under 
the bill, the Secretary of the Treasury would be authorized to 
sell reinsurance to state-sponsored insurers and reinsurers 
(private entities would not be eligible) in amounts to be 
determined by the Secretary. Such reinsurance could only be 
offered to the extent that appropriations for the maximum 
potential liability of the federal government were provided in 
advance for each year of insurance coverage.
    H.R. 2555 also would authorize appropriations for the 
Treasury to enter into commitments to guarantee the principal 
and interest of bonds issued by eligible insurers and 
reinsurers following a disaster. The total principal of 
outstanding bonds guaranteed by the Treasury could not exceed 
$3.5 billion for earthquake claims and $17 billion for all 
other perils. H.R. 2555 would authorize the appropriation of 
$75 million over the 2011-2014 period to provide grants for 
state and local governments to help prevent and mitigate losses 
from natural disasters. Additionally, CBO estimates that the 
bill would authorize the appropriation of about $700 million 
from the new federal reinsurance program for the same purpose. 
The bill also would authorize the appropriation of $100 million 
over the 2011-2014 period to establish a National Catastrophe 
Risk Consortium.
    Pay-as-you-go procedures do not apply to this legislation 
because it would not affect direct spending or revenues.
    H.R. 2555 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 2555 is shown in the following table. 
The costs of this legislation fall within budget function 450 
(community and regional development).

----------------------------------------------------------------------------------------------------------------
                                                                 By fiscal year, in millions of dollars--
                                                         -------------------------------------------------------
                                                            2011     2012     2013     2014     2015   2011-2015
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Natural Catastrophe Reinsurance Fund:
    Estimated Authorization Level.......................    3,440    7,035    7,190    7,350    7,515    32,539
    Estimated Outlays...................................      124      258      265      274      284     1,205
Catastrophe Obligation Guarantee Program:
    Estimated Authorization Level.......................       65        2        2       23       23       115
    Estimated Outlays...................................       23       23       23       23       23       115
Mitigation Grant Program:
    Estimated Authorization Level.......................       15       38      105      230      376       764
    Estimated Outlays...................................        2        8       28       73      156       267
National Catastrophe Risk Consortium:
    Authorization Level.................................       20       20       20       20        0        80
    Estimated Outlays...................................       10       18       20       20       12        80
Total Changes:
    Estimated Authorization Level.......................    3,540    7,095    7,317    7,623    7,914    33,489
    Estimated Outlays...................................      159      307      336      390      475     1,667
----------------------------------------------------------------------------------------------------------------

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted by the end of fiscal year 2010 and that 
the necessary amounts will be appropriated for each fiscal year 
beginning in 2011.
    Several factors make the costs of the legislation highly 
uncertain. Under the bill, the Treasury would have considerable 
discretion in implementing the federal reinsurance and debt 
guarantee programs, including establishing eligibility and 
setting the terms for reinsurance contracts. This discretion 
makes it difficult to determine which state-sponsored programs 
would participate. Second, because the structure of various 
insurers and reinsurers may be altered in response to this 
legislation or in response to a future disaster, it is unclear 
what the risk profile of those programs would look like each 
year. Unless otherwise indicated by historical experience or 
information provided by a program, CBO assumes for this 
estimate that potentially eligible entities would operate under 
their current structure for the next five years and that 
reinsurance terms offered by the Treasury would encourage 
participation in the federal program.

Programs that increase access to capital

    H.R. 2555 would establish two new programs within the 
Treasury to allow certain state-sponsored insurers and 
reinsurers to access funding to pay claims following a natural 
disaster--the National Catastrophe Reinsurance Fund and the 
Catastrophe Obligation Guarantee program. To be eligible for 
those programs, insurers or reinsurers would have to:
     Operate as a state-sponsored, nonprofit program 
that offers (or reinsures) residential property insurance, and 
in which the state has a financial interest;
     Be governed by a body made up of a majority of 
public officials;
     Charge premiums that are actuarially sound and do 
not cross-subsidize separate insurance lines;
     Be considered an ``integral part'' of the state or 
otherwise recognized as exempt from federal income taxation;
     Reflect hazard mitigation measures in premiums; 
and
     Reside in a state that has adopted mitigation 
measures consistent with the International Code Council 
building codes.
    During the first five years following enactment, if a state 
does not have an otherwise eligible program, a residual insurer 
or other state-sponsored provider of catastrophe insurance 
would be eligible to participate in the new federal programs if 
such insurance existed prior to enactment of H.R. 2555.
    Based on the criteria set forth in the legislation, CBO 
expects that several existing insurance entities would be 
eligible to purchase reinsurance or obtain a debt guarantee 
commitment from the Treasury under the bill over the next five 
years. Examples of such programs include the Florida Hurricane 
Catastrophe Fund (FHCF), the California Earthquake Authority 
(CEA), the Texas Windstorm Insurance Association (TWIA), 
Louisiana Citizens Property Insurance, and other state Fair 
Access to Insurance Requirements (FAIR) plans. Actuaries from 
Florida Citizens Property Insurance (a state-regulated primary 
insurer for property owners unable to obtain coverage in the 
private market) as well as the state have recently acknowledged 
that the insurer is charging below actuarially sound premiums. 
Thus, CBO assumes that Florida Citizens would not be eligible 
for either of the new Treasury programs during the next five 
years. In addition, the program would not qualify for special 
treatment during the five-year transition period because 
Florida has another program (the FHCF) that meets the 
eligibility criteria under the legislation.
    In addition to those state-sponsored entities already 
established, states could modify or create other programs that 
would become eligible to participate in the new federal 
programs. For example, following Hurricane Iniki, Hawaii 
created a Hurricane Relief Fund in 1993 to provide direct 
insurance to property owners. The state stopped writing 
coverage in 2000; however, it is possible that the fund (or a 
similar entity in another state) could write coverage in the 
future and become eligible to purchase reinsurance or obtain a 
debt guarantee under the legislation. For this estimate, CBO 
assumes that only active insurance programs currently 
established would participate. If programs not yet established 
participate in the future, the estimated costs of this 
legislation would be higher.
    National Catastrophe Reinsurance Fund. Title III would 
establish a National Catastrophe Reinsurance Fund within the 
Treasury and would authorize such sums as may be necessary to 
cover the maximum potential liability of the federal government 
for reinsurance coverage purchased through the fund. 
Reinsurance contracts would cover 90 percent of insured losses 
above and below unspecified minimum retention and maximum 
coverage levels (set at the discretion of the Treasury) during 
a given year. The premium charged for such coverage would be 
set at an amount that the Treasury estimates would offset the 
expected cost of the reinsurance, including administrative 
expenses.
    CBO estimates that eligible entities would seek about $7 
billion in reinsurance coverage from the proposed federal 
reinsurance fund in 2012 (the first full year that the fund 
would be effective under the legislation). We estimate that 
eligible entities would continue to seek the same level of 
coverage in future years, adjusted for increases in the value 
and volume of insurance coverage and reaching about $7.5 
billion by 2015. CBO's estimate of the expected cost of the 
reinsurance coverage--net of the premiums charged for that 
federal coverage--averages about $270 million a year over the 
2012-2015 period. As discussed below, CBO expects that premiums 
charged for the federal reinsurance program would be inadequate 
to compensate the government for the cost of that coverage.
    Premiums Would Likely Fall Below Those Offered by the 
Private Market. Because insurers and reinsurers do not have 
perfect information, they face considerable uncertainty in 
setting premiums. For natural disaster coverage, the two main 
sources of uncertainty involve estimates of expected losses 
(underwriting risk) and timing of payments (timing risk).
    Estimates of expected property damage from catastrophic 
natural disasters rely on historical data as well as 
projections of changes in weather patterns and property values. 
Because catastrophic natural disasters are infrequent, 
historical data are very limited. Therefore, reinsurers face 
considerable risk that their estimates of expected property 
damages, and thus premiums, will not be high enough to cover 
actual losses over time. Even if insurers and reinsurers knew 
the exact premium that would cover losses over time, there is 
still a risk that a high-cost, low-probability disaster could 
occur early in the program's history, before the program had 
time to collect enough premiums to accumulate a sufficient 
level of reserves.
    Private insurers and reinsurers of catastrophic events 
attempt to address both of those risks (as well as others) by 
including a substantial ``risk load''\1\ in their premiums. 
Risk loads observed in private transactions for natural 
disaster reinsurance vary depending on the range of expected 
property damages (variance) for a given disaster. Estimates for 
infrequent events (very severe hurricanes or earthquakes, for 
example) have wider ranges of expected damages, and thus 
reinsurance premiums for those events tend to carry a higher 
risk load. Typical risk loads may be four to six times as large 
as the expected losses, but they can be 10 times or more.
---------------------------------------------------------------------------
    \1\A ``risk load'' is a factor used by insurers to adjust premiums 
upward to account for uncertainties in the models used to estimate 
property damages and other risks inherent in issuing an insurance or 
reinsurance contract.
---------------------------------------------------------------------------
    There are several reasons why CBO believes that both the 
risk load and the overall premium offered by the Treasury would 
be less than a comparable premium charged by the private 
market:
     The federal program would have the capacity to 
absorb large levels of losses as soon as the program begins 
operation because of the requirement that the maximum potential 
liability be appropriated in advance of issuance; therefore, 
the federal reinsurance program would not have to include 
timing risk in its premium calculation.
     Other government insurance programs (for example, 
crop insurance and flood insurance) have not typically 
incorporated significant risk multiples into premiums to 
account for uncertainty in loss estimates.
     The Treasury would be required under the bill to 
account for savings associated with the nonprofit and tax-
exempt status of the fund when setting premiums.
     Consumer and political pressures directed toward 
the proposed federal program would likely create a strong 
incentive for its managers to keep reinsurance premiums low to 
address homeowners' concerns of price and availability in the 
property insurance market. The wide range of expected outcomes 
produced by catastrophic models provides the ability for 
programs to choose lower expected losses while meeting the 
requirement of being actuarially sound.
    Demand for Reinsurance and Estimated Authorization Level. 
CBO expects that FHCF, CEA, TWIA, Louisiana Citizens, and 
several state-sponsored FAIR plans would purchase federal 
reinsurance under H.R. 2555 over the next five years. Some of 
those insurance entities would cease purchasing coverage from 
the Treasury following 2015 because they would no longer be 
eligible. (Most FAIR plans would not qualify for the federal 
reinsurance program under the criteria set forth in the bill 
and would only participate for the five years after enactment--
the transition period during which noneligible residual 
insurers and other state providers of catastrophe insurance 
could participate if no other state-sponsored entity was 
eligible.) Because CBO expects that premiums offered by the 
federal government would be below those offered by the private 
market, we estimate that over time, each participating program 
would purchase all of its reinsurance through the new federal 
program.
    Under the bill, the total liability of the fund in any 
single year could not exceed the amount appropriated by the 
Congress for that purpose. In other words, a reinsurance 
contract that would reimburse a state-sponsored insurer or 
reinsurer for up to $10 billion in property damage claims from 
a natural disaster would require an appropriation of $10 
billion before the policy could be issued. CBO obtained data 
from many potential participants in the federal reinsurance 
program, including current and historical reinsurance 
purchases. Based on this information, CBO estimates that the 
National Catastrophe Reinsurance Fund would require about $3.4 
billion in appropriations in 2011 and almost $33 billion over 
the 2011-2015 period to meet the demand for federal 
reinsurance.
    Federal Reinsurance Would Likely Be Priced Below Cost. If 
the Treasury had perfect information needed to set premiums for 
the proposed reinsurance program, the expected net cost of the 
program would be zero. Actual costs from year to year would be 
positive or negative depending on the random occurrence of 
covered events; however, over time the program would generate 
enough income to cover all claims.
    CBO has limited confidence in the accuracy of expected loss 
estimates used to set premiums for reinsurance of catastrophic 
natural disasters. The significant uncertainty inherent in the 
models used to forecast the frequency and severity of natural 
disasters and their effects on insured structures, the tendency 
of government programs to include relatively small or no risk 
loads, and political and consumer pressures to keep premiums 
low would lead, we expect, to premiums that are unlikely to 
cover future costs.
    Net Expenditures From the National Catastrophe Reinsurance 
Fund Would Be Positive. Because the legislation would require 
the appropriation of the maximum potential loss of the federal 
government prior to the issuance of a reinsurance contract, 
insured losses could not exceed amounts appropriated to the 
fund. However, CBO expects that reinsurance claims resulting 
from property damage caused by natural disasters would exceed 
premium income, resulting in net outlays from the fund. Even if 
the federal government were just as likely to set some premiums 
too high as too low, the implications for net program costs 
would not be symmetric because low premiums would encourage 
sales, while high premiums would discourage sales. CBO 
estimates that the federal government would tend to sell more 
reinsurance at a loss than at a gain, resulting in net 
expenditures from the fund.
    Based on current and historical data on probable maximum 
losses and reinsurance, CBO estimates that reinsurance claims 
would exceed premiums by $1.2 billion over the next five years, 
resulting in net outlays from the National Catastrophe 
Reinsurance Fund of that amount.
    Catastrophe Obligation Guarantee Program. Title II would 
authorize such sums as may be necessary for the Secretary of 
the Treasury to guarantee the principal and interest of debt 
obligations (for example, bonds) issued by eligible insurers 
and reinsurers to pay claims for property damages following a 
natural disaster. The guaranteed principal could not exceed 
expected insured losses less 80 percent of the issuing 
programs' reported assets, $3.5 billion for earthquake damages, 
or $17 billion for damages from all other perils, whichever is 
least. State programs receiving a guarantee under the bill 
would be assessed an annual fee not to exceed one-half of one 
percent of the outstanding debt.
    The budgetary accounting for loan guarantees is governed by 
the Federal Credit Reform Act of 1990 (FCRA), which requires an 
appropriation of the subsidy and administrative costs 
associated with federal loan guarantees and federal direct 
loans. Under FCRA, the subsidy is the estimated lifetime cost 
to the government of a loan or loan guarantee, calculated on a 
net-present-value basis excluding administrative costs. FCRA 
further specifies that the present-value computation should be 
done by discounting the expected net cash flows from the 
government at interest rates on Treasury securities of 
comparable maturity.
    CBO expects that FHCF, CEA, TWIA, and Louisiana Citizens 
would apply for a guarantee under H.R. 3555. In addition, other 
state FAIR plans (such as the Mississippi Windstorm 
Underwriting Association) may participate, although very few 
have the current authority to issue debt. Based on the current 
risk profiles and claims-paying capacities of those programs, 
the annualized volume of debt obligations that would be 
guaranteed under the bill would total about $2.1 billion 
(mostly from TWIA and FHCF), we estimate. The relatively high 
credit rating of insurers and reinsurers likely to participate, 
combined with expected fee income, suggests a relatively low 
subsidy rate for those guarantees--between zero and 2 percent, 
depending on the size of the fee--for a total subsidy cost of 
about $20 million per year.
    Under the bill, the Treasury would enter into a three-year 
commitment (with optional single-year renewals thereafter) to 
guarantee debt issued by a participating program following a 
natural disaster. While it is unlikely that a natural disaster 
large enough to trigger a debt guarantee would occur, CBO 
believes that a commitment to guarantee debt would constitute 
an obligation of the federal government and would require an 
appropriation to cover the expected cost of any guarantees that 
might be entered into. CBO estimates that the Treasury would 
need $63 million (three years of estimated subsidy costs) to 
enter into debt guarantee commitments covering the 2011-2013 
period. For each one-year renewal period thereafter, CBO 
estimates about $21 million would need to be provided.
    Federal expenditures resulting from a default on a debt 
guarantee made under the bill would likely be infrequent (due 
to the low probability that a major disaster causing a 
participating insurer or reinsurer to borrow funds to pay 
claims would occur and the low probability that the issuing 
program would default on such borrowing). CBO's estimate of 
this provision is an annualized cost that reflects those low 
probabilities. However, if a large-scale natural disaster were 
to occur and if a state program were to default, spending would 
be much greater than the expected costs included in this 
estimate.
    CBO estimates that the cost of guaranteeing debt 
obligations after a disaster would total about $115 million 
over the next five years, including about $2 million a year for 
program administration. (Such administrative costs for federal 
loan and loan guarantee programs are recorded in the budget on 
a cash basis.)

Other discretionary programs

    H.R. 2555 also would authorize appropriations for hazard 
mitigation grants and the establishment of a National 
Catastrophic Risk Consortium. CBO estimates that enacting those 
provisions would cost $347 million over the 2011-2015 period, 
assuming appropriation of the specified and necessary amounts.
    Mitigation Grant Program. Title IV would authorize the 
appropriation of $15 million for each of fiscal years 2011 
through 2014 for the Department of Housing and Urban 
Development to award grants to state and local governments to 
prevent and mitigate losses from natural disasters. In 
addition, the bill would authorize the appropriation of an 
amount equal to 35 percent of the investment income of the 
National Catastrophe Reinsurance Fund (which CBO estimates 
would total about $704 million over the 2012-2015 period), for 
a total authorization level of $764 million. Based on 
historical expenditures of existing mitigation programs, we 
estimate that implementing this program would cost $267 million 
over the next five years.
    National Catastrophe Risk Consortium. Title I would 
authorize the appropriation of $20 million for each of fiscal 
years 2011-2014 to establish the National Catastrophe Risk 
Consortium. The consortium would be a federal entity managed by 
a board of directors made up of designees from the Departments 
of the Treasury, Commerce, and Homeland Security, and members 
of participating states that operate or have authorized a 
natural catastrophe or residual market insurance entity. 
Responsibilities of the consortium would include: gathering 
risk and insurance information, conducting research and 
analysis into the standardization of risk-linked securities, 
and facilitating different avenues (for example, securitization 
and reinsurance) for states to transfer risk to the private 
market. Under the bill, any security or other financial 
instrument coordinated by the consortium would be done on a 
conduit basis (that is, the consortium and the federal 
government would assume no risk). Based on the cost of similar 
efforts, CBO estimates that implementing this provision would 
cost $80 million over the 2011-2015 period for staff and 
research expenses, assuming appropriation of specified amounts.
    Pay-as-you-go considerations: None.
    Intergovernmental and private-sector impact: H.R. 2555 
contains no intergovernmental or private-sector mandates as 
defined in UMRA. Debt guarantees, reinsurance policies, and 
mitigation grants in the bill would benefit state and local 
governments. Any costs to those entities would be incurred 
voluntarily as conditions of participating in a voluntary 
federal program.
    Estimate prepared by: Federal Costs: Daniel Hoople; Impact 
on State, Local, and Tribal Governments: Melissa Merrell; 
Impact on the Private Sector: Paige Piper/Bach.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                       FEDERAL MANDATES STATEMENT

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      ADVISORY COMMITTEE STATEMENT

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

                   CONSTITUTIONAL AUTHORITY STATEMENT

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  APPLICABILITY TO LEGISLATIVE BRANCH

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                         EARMARK IDENTIFICATION

    H.R. 2555 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

             SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Title I: The National Catastrophe Risk Consortium

            Sec. 101--Establishment; status; principal office; 
                    membership
    This Title establishes a National Catastrophe Risk 
Consortium that would consist of States that join on a 
voluntary basis.
            Sec. 102--Functions
    The Consortium will maintain an inventory of catastrophe 
risk obligations held by participating States and will issue 
financial instruments linked to catastrophe risk in the capital 
markets. Furthermore, it can coordinate reinsurance contracts 
with private parties. The Consortium will also act as a 
database of State catastrophe risk information. Finally, the 
Consortium will perform research and analysis that encourages 
standardization of the risk-linked securities market.
            Sec. 103--Powers
    The Consortium can contract with any individual or public 
or private entity necessary for carrying out its functions.
            Sec. 104--Non-profit entity; conflict of interest; audits
    The Consortium is a non-profit organization with no capital 
stock. To ensure continued integrity, the Consortium's 
financial statements shall be audited annually by independent 
certified public accountants. The Consortium is prohibited from 
engaging in any election related and lobbying activities.
            Sec. 105--Management
    The Consortium shall be managed by a Board of Directors 
composed of the Secretaries of Treasury, Homeland Security and 
Commerce and a member from each participating State. The Chair 
of this Board shall be the Secretary of the Treasury or the 
Secretary's designee.
            Sec. 106--Staff; experts and consultants
    The Chair may appoint staff and set their compensation.
            Sec. 107--Federal liability
    The Federal Government will bear no liabilities from the 
actions of the Consortium.
            Sec. 108--Authorization of appropriations
    The Consortium is authorized for $20 million for each year 
2010-2014.

Title II: Catastrophe Obligation Guarantees

            Sec. 201--Purpose
    The Secretary of the Treasury (the Secretary) will 
guarantee the debt of a State catastrophe insurance program to 
provide liquidity so that the State program can expedite 
payment of claims and recovery from a significant natural 
catastrophe.
            Sec. 202--Establishment of debt guarantee program
    The Secretary is authorized to guarantee holders of debt 
issued by eligible State programs against loss of principal or 
interest, or both. The total principal amount of debt 
obligations guaranteed by the Secretary will not exceed 3.5 
billion for earthquake coverage or 17 billion for all other 
perils. A commitment to guarantee debt by the Secretary is good 
for three years and may be extended for one year on an annual 
basis.
    The Secretary may issue the commitment to guarantee only if 
the eligible State program submits a plan detailing how the 
program plans to repay the debt. Further eligibility conditions 
for the commitment to guarantee include: (i) specifying the 
fees for debt guarantee coverage; (ii) stipulating that the 
maximum term of the debt may not exceed 30 years; (iii) 
requiring that the eligible State program cannot use Federal 
funds of any kind to repay the debt; and (iv) ensuring that the 
commitment is not extended to State programs that cover losses 
arising from floods to properties in a special flood hazard 
area.
    To obtain a debt guarantee under this section, an eligible 
State program must show that insured losses arising from the 
event or events covered by the commitment are likely to exceed 
the program's available cash resources on the date of the 
event.
    The aggregate principal amount of the debt guaranteed 
following an event or events may not exceed 80 percent of the 
qualifying assets of the eligible State program as stated in 
the State program's most recent financial statement prior to 
the event or events.
            Sec. 203--Effect of guarantee
    The issuance of any guarantee by the Secretary shall be 
conclusive evidence that the guarantee has been properly 
obtained.
            Sec. 204--Full faith and credit
    The full faith and credit of the United States is pledged 
to the payment of all guarantees issued under this title.
            Sec. 205--Fees for guarantees; amount; collection
    The Secretary shall charge and collect fees for each 
guarantee that are sufficient to cover applicable 
administrative costs and probable losses on the guaranteed 
obligations.
            Sec. 206--Payment of losses
    The Secretary will pay the duly appointed agent for the 
eligible State program the principal and interest on any debt 
guaranteed under this title when the State program cannot make 
such payments.

Title III: Reinsurance coverage for eligible state programs

            Sec. 301--Program authority
    The Secretary shall offer reinsurance coverage subject to 
the requirements of this Act for eligible State programs.
            Sec. 302--Contract principles
    Reinsurance coverage made available under this title shall: 
(i) be priced on an actuarially sound basis; (ii) minimize the 
administrative costs of the Federal Government; and (iii) 
provide coverage based solely on insured losses covered by the 
eligible State program purchasing the contract.
            Sec. 303--Terms of reinsurance contracts
    The Secretary is to set attachment points for reinsurance 
coverage provided under this act based on the coverage 
available through eligible State programs and the availability 
and accessibility of reinsurance in the private market. This 
section also provides the Secretary with the flexibility to set 
the aggregate potential liability based on market conditions. 
Reinsurance coverage under this title shall not exceed one year 
or such other term as the Secretary may determine.
    The Federal government will pay 90 percent of insured 
losses covered in the contract to the eligible State program in 
excess of the amount of retained losses that the contract 
requires.
    The Secretary shall price reinsurance coverage at such a 
level that annual premiums are sufficient to pay: (i) the 
reasonably anticipated cost of all claims (which may not be 
equal only to average annual costs); (ii) loss adjustment 
expenses; (iii) the administrative costs of providing 
reinsurance coverage; and (iv) any retrocessional coverage the 
Secretary considers prudent. The anticipated cost of all claims 
shall be comparable to amounts being included in the price for 
similar layers of coverage in the private sector.
            Sec. 304--Maximum Federal liability
    The authority of the Secretary to enter into contracts for 
reinsurance coverage is effective only to such extent or in 
such amounts as are or have been provided in appropriations for 
the aggregate potential liability for payment of claims under 
all contracts for reinsurance coverage under this title.
    The aggregate potential liability for reinsurance coverage 
sold by the Secretary in any single year shall be determined 
based on review of the market for reinsurance coverage under 
this title.
            Sec. 305--Federal Natural Catastrophe Reinsurance Fund
    The Secretary shall establish within the Treasury a Federal 
Natural Catastrophe Reinsurance Fund, which can collect 
reinsurance premiums, pay claims, obtain retrocessional 
coverage and invest excess funds in US government debt.

Title IV: Mitigation Grant Program

            Sec. 401--Mitigation grant program
    The Secretary of Housing and Urban Development shall 
establish and carry out a grant program to develop, enhance, or 
maintain programs to prevent and mitigate losses from natural 
catastrophes.
    A grant under this program shall be used to: (i) encourage 
awareness of risk factors and ways reduce them; (ii) assist in 
the determination of the location of risk; (iii) provide 
inspections of homes to identify ways to strengthen such homes; 
(iv) provide financial assistance to retrofit homes; or to (v) 
support disaster response readiness programs.
    Pursuant to section 305(d), for purposes of the grant 
mandate, the Secretary of the Treasury shall disclose the 
annual net investment income available not later than 60 days 
after the end of the fiscal year and disperse appropriate funds 
not later than 90 days after the end of the fiscal year.

Title V: General Provisions

            Sec. 501--Eligible State programs
    To qualify as an eligible State program under this Act, a 
program must: (i) be established and authorized by State law as 
an insurance or reinsurance program that is designed to improve 
the private insurance markets; (ii) have a majority of public 
officials or persons on its governing body; (iii) include 
provisions designed to encourage and support programs that 
mitigate losses from natural catastrophes; and (iv) comply with 
applicable risk-based capital requirements.
    For five-years after enactment, if a State does not have an 
eligible State Program, a State residual insurance market 
entity or State-sponsored provider of natural catastrophe 
insurance will be considered an eligible State program if these 
programs were in existence before enactment.
            Sec. 502--Study and conditional coverage of commercial 
                    residential lines of insurance
    Directs the Secretary to study the need for and impact of 
expanding this Act to apply to insured losses arising from all 
commercial insurance policies which provide coverage for 
properties that are composed predominantly of residential 
rental units.
            Sec. 503--Study of risk-based pricing and state program 
                    rates
    Directs the Government Accountability Office (GAO) to 
present a report to Congress within six months on risk-based 
pricing in current State insurance and reinsurance funds, and 
rates for State insurance and reinsurance funds that fail to 
cover the expected value of all future costs.
            Sec. 504--Definitions
    Defines various terms in the bill, including commitment to 
guarantee, insured loss and qualifying asset.
            Sec. 505--Regulations
    The Secretary shall issue such regulations as may be 
necessary to carry out this Act.

                            DISSENTING VIEWS

    H.R. 2555, the Homeowner Defense Act, is ill-advised and 
unwarranted legislation that proposes to create new Federal 
programs that would shift the financial risks of property 
owners in catastrophe-prone states to U.S. taxpayers. This 
fiscally reckless and irresponsible measure would expose all 
Federal taxpayers to massive new liabilities that could 
potentially total billions of dollars. The bill would also 
undermine private insurance and reinsurance markets by setting 
up the Federal government to sell reinsurance and provide new 
debt guarantees; create new moral hazards by undermining 
market-based incentives for mitigation and risk management; and 
put taxpayers on the hook for yet another Federal bailout in 
the event that a state catastrophe insurance program cannot 
meet its obligations.
    According to an estimate by the Congressional Budget Office 
(CBO), H.R. 2555 would cost $1.7 billion over five years. We 
believe this estimate may represent only the tip of the 
iceberg. CBO expects that ``premiums charged for the federal 
reinsurance program would be inadequate to compensate the 
government for the cost of that coverage.'' The CBO report also 
expresses the concern that ``consumer and political pressures 
directed toward the proposed federal program would likely 
create a strong incentive for its managers to keep reinsurance 
premiums low . . .'' In addition, referring to the proposed 
catastrophic obligation guarantee program, the CBO report warns 
that ``if a large-scale natural disaster were to occur and if a 
state program were to default, spending would be much greater 
than the expected costs included in this estimate.''
    A broad range of taxpayer rights and environmental 
organizations have expressed strong opposition to H.R. 2555. In 
recent subcommittee testimony, the non-partisan budget watchdog 
group, Taxpayers for Common Sense asserted that ``H.R. 2555 is 
fundamentally flawed'' and ``would actually end up putting 
taxpayers at risk and subsidizing people to live in harm's way. 
Taxpayers across the country would be forced to pay for a 
narrow bailout that primarily helps the well off. It doesn't 
make sense.''
    In addition, the Smarter Safer Coalition, which includes 
environmental groups, taxpayer organizations and insurance 
industry representatives, strongly opposes H.R. 2555 because it 
would cost taxpayers billions of dollars, discourage the 
insurance and reinsurance private market, and result in 
incentives to build in unsafe and environmentally fragile 
areas. According to the Coalition, H.R. 2555 ``creates a 
federal bailout program principally designed to benefit 
hurricane-threatened Florida at the expense of taxpayers in all 
50 states. The legislation supports a Florida system that is 
based on artificially low premiums. Such a system encourages 
risky development behavior. It is a cost the federal government 
and taxpayers cannot afford.''
    Furthermore, according to recent testimony by the National 
Wildlife Federation, the environmental community is concerned 
that ``H.R. 2555 would create incentives for other states to 
create Florida-like state CAT funds, sending a signal that 
states could begin to move away from more sound policies toward 
higher risks and subsidies such as Florida has.'' The 
Federation witness also stated, ``In the long run we believe 
the overall effect of the legislation would be to exacerbate 
natural hazard risks and costs to homeowners and ultimately to 
the U.S. taxpayers. As a result, the National Wildlife 
Federation opposes H.R. 2555 in its current form.''
    Natural catastrophes can be financially devastating to many 
of our citizens, and securing adequate insurance coverage 
against property losses is an ongoing challenge for some 
homeowners, businesses and communities located in certain high-
risk regions of the United States. When the private insurance 
and reinsurance markets are allowed to function and charge 
premium rates based on actuarially sound data that projects the 
risk of losses, there is typically ample competition and an 
abundant supply of insurance capacity. After major storms, 
rates may increase, in some cases substantially, and 
availability may decrease as insurers seek to manage their risk 
more conservatively. While these insurance rate and 
availability fluctuations may present challenges for many 
people in the affected regions, they are part of the cost of 
living in high-risk areas.
    In particular, the State of Florida faces extraordinary 
challenges in maintaining stable private insurance markets to 
provide financial protection against hurricanes and the severe 
and widespread property damage they can cause. While Florida 
has taken tentative steps recently to permit insurance premium 
rates to begin increasing gradually over time, rates have been 
artificially restrained for many years and remain far short of 
being actuarially sound and commensurate with the projected 
risk. Government-imposed rate controls, while they can provide 
short-term rate relief in the form of subsidized insurance 
premiums, will over time undermine the goal of maintaining 
competitive private insurance and reinsurance markets. Rate 
controls and premium subsidies will also erode market-based 
incentives for prudent risk management and loss mitigation.
    After Hurricane Andrew in 1992, Florida established the 
Hurricane Catastrophe Fund as a tax-exempt state trust fund to 
provide insurance companies with reimbursement for a portion of 
their catastrophic hurricane losses. More recently, in 2002, 
the Florida Citizens Property Insurance Corporation was created 
to serve as an insurer of last resort but has grown to become 
the state's largest property insurer. Both of these state 
insurance programs are part of a system that seeks to maintain 
low insurance rates, and both programs continue to face large 
funding shortfalls in meeting their potential obligations to 
pay claims.
    H.R. 2555 seeks to shift a large portion of the financial 
burden of natural catastrophe risk management from underfunded 
state insurance programs, like those in Florida, to the Federal 
government. Even within the State of Florida, there is an 
ongoing debate over the fairness of imposing assessments on all 
residents across the state to cover the shortfalls caused by 
charging inadequate insurance rates for properties located in 
vulnerable coastal areas.
    During the Committee's consideration of H.R. 2555, 
Representatives Capito and Garrett offered a Republican 
substitute that would establish an independent blue-ribbon 
commission to study regional catastrophe risk management 
challenges and explore global risk management opportunities. We 
believe an independent commission of experts is needed to 
evaluate the full range of alternatives to promote more 
effective loss mitigation strategies and encourage more stable 
private insurance and reinsurance markets in high-risk regions. 
The Capito-Garrett amendment would direct the Commission to 
report to Congress before the beginning of the 2011 hurricane 
season. This would enable Congress to consider and act upon the 
Commission's recommendations in a timely fashion.
    Instead of creating new programs that will lead to Federal 
bailouts for underfunded state catastrophe insurance programs, 
we should be exploring market-based risk-management 
alternatives and developing more comprehensive strategies to 
help minimize the financial threats of natural disasters.
    Now is the wrong time to increase the American taxpayer's 
exposure to new liabilities while we are trying to rein in 
spending and reduce the deficit. The best way to drive 
insurance premium rates down and to expand capacity is to 
promote more private sector competition in the marketplace 
rather than intervening with costly new government programs.
                                   Spencer Bachus.
                                   Scott Garrett.
                                   Frank Lucas.
                                   Jeb Hensarling.
                                   Mike Castle.
                                   Shelley Moore Capito.
                                   Randy Neugebauer.
                                   Walter Jones.
                                   Judy Biggert.
                                   Kenny Marchant.

                                  
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