,,ii #aacth ,,congress #ast ,session ,s4 #adfa ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,august #a1 #bjac ,mr4 ,nelson introduced the following bill2 which was read twice and referred to the ,committee on ,banking1 ,housing1 and ,urban ,affairs ,a ,,bill ,to establish a ,national ,catastrophe ,risks ,consortium and a ,national ,homeowners' ,insurance ,stabilization ,program1 and for other purposes4 #a4 ,short title2 table of contents 7a7 ,short title ,this ,act may be cited as the ,homeowners' ,defense ,act of #bjac4 7b7 ,table of contents ,the table of contents for this ,act is as follows3 ,sec4 #a4 ,short title2 table of contents4 ,sec4 #b4 ,findings and purposes4 ,sec4 #c4 ,qualified reinsurance programs4 ,sec4 #d4 ,definitions4 ,sec4 #e4 ,regulations4 ,,title ,i--,national ,catastrophe ,risk ,consortium ,sec4 #aja4 ,establishment2 status2 principal office2 membership4 ,sec4 #ajb4 ,functions4 ,sec4 #ajc4 ,powers4 ,sec4 #ajd4 ,nonprofit entity2 conflicts of interest2 audits4 ,sec4 #aje4 ,management4 ,sec4 #ajf4 ,staff2 experts and consultants4 ,sec4 #ajg4 ,federal liability4 ,sec4 #ajh4 ,authorization of appropriations4 ,,title ,,ii--,national ,homeowners' ,insurance ,stabilization ,program ,sec4 #bja4 ,establishment4 ,sec4 #bjb4 ,liquidity loans and catastrophic loans for ,state and regional reinsurance programs4 ,sec4 #bjc4 ,reports and audits4 ,sec4 #bjd4 ,funding4 #b4 ,findings and purposes 7a7 ,findings ,the ,congress finds that-- 7#a7 the ,united ,states has a history of catastrophic natural disasters1 including hurricanes1 tornadoes1 flood1 fire1 earthquakes1 and volcanic eruptions2 7#b7 although catastrophic natural disasters occur infrequently1 they will continue to occur and are predictable2 7#c7 such disasters generate large economic losses and a major component of those losses comes from damage and destruction to homes2 7#d7 for the majority of ,americans1 their investment in their home represents their single biggest asset and the protection of that investment is paramount to economic and social stability2 7#e7 historically1 when a natural disaster eclipses the ability of the private industry and a ,state to manage the loss1 the ,federal ,government has stepped in to provide the funding and services needed for recovery2 7#f7 the cost of such ,federal bail-outs are borne by all taxpayers equally1 as there is no provision to repay the money and resources provided1 which thereby unfairly burdens citizens who live in lower risk communities2 7#g7 as the risk of catastrophic losses grows1 so do the risks that any premiums collected by private insurers for extending coverage will be insufficient to cover future catastrophes 7known as timing risk71 and private insurers1 in an effort to protect their shareholders and policyholders 7in the case of mutually owned companies71 have thus significantly raised premiums and curtailed insurance coverage in ,states exposed to major catastrophes2 7#h7 such effects on the insurance industry have been harmful to economic activity in ,states exposed to major catastrophes and have placed significant burdens on existing residents of such ,states2 7#i7 ,hurricanes ,katrina1 ,rita1 and ,wilma struck the ,united ,states in #bjje1 causing over #bjj1jjj1jjj1jjj in total economic losses1 and insured losses to homeowners in excess of #ej1jjj1jjj1jjj2 7#aj7 since #bjjd1 the ,congress has appropriated more than #eh1jjj1jjj1jjj in disaster relief to the ,states affected by natural catastrophes2 7#aa7 the ,federal ,government has provided and will continue to provide resources to pay for losses from future catastrophes2 7#ab7 when ,federal assistance is provided to the ,states1 accountability for ,federal funds disbursed is paramount2 7#ac7 the ,government ,accountability ,office or other appropriate agencies must have the means in place to confirm that ,federal funds for catastrophe relief have reached the appropriate victims and have contributed to the recovery effort as efficiently as possible so that taxpayer funds are not wasted and citizens are enabled to rebuild and resume productive activities as quickly as possible2 7#ad7 ,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 disasters2 7#ae7 ,state insurance and reinsurance programs can provide a mechanism for ,states to exercise that responsibility if they appropriately underwrite and price risk1 and if they pay claims quickly and within established contractual terms2 and 7#af7 ,state insurers and reinsurers1 if appropriately backstopped themselves1 can absorb catastrophic risk borne by private insurers without bearing timing risk1 and thus enable all insurers 7whether ,state-operated or privately owned7 to underwrite and price insurance without timing risk and in such a way to encourage property owners to pay for the appropriate insurance to protect themselves and to take steps to mitigate against the risks of disaster by locally appropriate methods4 7b7 ,purposes ,the purposes of this ,act are to establish a program to provide a ,federal backstop for ,state-sponsored insurance programs to help homeowners prepare for and recover from the damages caused by natural catastrophes1 to encourage mitigation and prevention for such catastrophes1 to promote the use of private market capital as a means to insure against such catastrophes1 to expedite the payment of claims and better assist in the financial recovery from such catastrophes4 #c4 ,qualified reinsurance programs 7a7 ,in general ,for purposes of this ,act only1 a program shall be considered to be a qualified reinsurance program if the program-- 7#a7 is authorized by ,state law for the purposes described in this section2 7#b7 is an entity in which the authorizing ,state maintains a material1 financial interest2 7#c7 provides reinsurance or retrocessional coverage to underlying primary insurers or reinsurers for losses arising from all personal residential lines of insurance1 as defined in the ,uniform ,property ,casualty ,product ,coding ,matrix published and maintained by the ,national ,association of ,insurance ,commissioners2 7#d7 has a governing body1 a majority of whose members are public officials2 7#e7 provides reinsurance or retrocessional coverage to underlying primary insurers or reinsurers for losses in excess of such amount that the ,secretary has determined represents a catastrophic event in that particular ,state2 7#f7 is authorized by a ,state that has in effect such laws1 regulations1 or other requirements1 as the ,secretary shall by regulation provide1 that-- 7,a7 ensure1 to the extent that reinsurance coverage made available under the qualified reinsurance program results in any cost savings in providing insurance coverage for risks in such ,state1 such cost savings are reflected in premium rates charged to consumers for such coverage2 7,b7 require that any new construction1 substantial rehabilitation1 and renovation insured or reinsured by the program complies with applicable ,state or local government building1 fire1 and safety codes2 7,c7 require ,state authorized insurance entities within that ,state to establish an insurance rate structure that takes into account measures to mitigate insurance losses2 7,d7 require ,state authorized insurance and reinsurance entities within that ,state to establish rates at a level that annually produces expected premiums that shall be sufficient to pay the expected annualized cost of all claims1 loss adjustment expenses1 and all administrative costs of reinsurance coverage offered2 and 7,e7 encourage ,state authorized insurance and reinsurance entities within that ,state to establish rates that do not involve cross-subsidization between any separate property and casualty lines covered under the ,state authorized insurance or reinsurance entity2 and 7#g7 complies with such additional organizational1 underwriting1 and financial requirements as the ,secretary shall1 by regulation1 provide to carry out the purposes of this ,act4 7b7 ,transitional ,mechanisms ,for the #e-year period beginning on the date of enactment of this ,act1 in the case of a ,state that does not have a qualified reinsurance program for the ,state1 a ,state residual insurance market entity for such ,state shall be considered to be a qualified reinsurance program1 but only if such ,state residual insurance market entity was in existence before such date of enactment4 7c7 ,precertification ,the ,secretary shall establish procedures and standards for ,state and regional reinsurance programs and the ,state residual insurance market entities described in subsection 7b7 to apply to the ,secretary at any time for certification 7and recertification7 as qualified reinsurance programs4 7d7 ,reinsurance ,to cover exposure ,this section may not be construed to limit or prevent any insurer from obtaining reinsurance coverage for insured losses retained by insurers pursuant to this section1 nor shall the obtaining of such coverage affect the calculation of the amount of any loan under this ,act4 #d4 ,definitions ,for purposes of this ,act1 the following definitions shall apply3 7#a7 ,ceiling coverage level ,the term ceiling coverage level means1 with respect to a qualified reinsurance program1 the maximum liability1 under law1 that could be incurred at any time by the qualified reinsurance program4 7#b7 ,commission ,the term ,commission means the ,national ,commission on ,natural ,catastrophe ,preparation and ,protection established under title ,,ii4 7#c7 ,consortium ,the term ,consortium means the ,national ,catastrophic ,risk ,consortium established under title ,i4 7#d7 ,insured loss ,the term insured loss means any loss insured by a qualified reinsurance program4 7#e7 ,qualified reinsurance program ,the term qualified reinsurance program means a ,state or regional program that meets the requirements of section #c4 7#f7 ,secretary ,the term ,secretary means the ,secretary of the ,treasury4 7#g7 ,state ,the term ,state includes the several ,states1 the ,district of ,columbia1 the ,commonwealth of ,puerto ,rico1 ,guam1 the ,commonwealth of the ,northern ,mariana ,islands1 the ,united ,states ,virgin ,islands1 and ,american ,samoa4 #e4 ,regulations ,the ,secretary shall issue such regulations as may be necessary to carry out this ,act4 ,i ,national ,catastrophe ,risk ,consortium #aja4 ,establishment2 status2 principal office2 membership 7a7 ,establishment ,there is established an entity to be known as the ,national ,catastrophe ,risk ,consortium4 7b7 ,status ,the ,consortium is not a department1 agency1 or instrumentality of the ,united ,states ,government4 7c7 ,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 ,consortium4 7d7 ,membership ,any ,state that has established a reinsurance fund or has authorized the operation of a ,state residual insurance market entity shall be eligible to participate in the ,consortium4 #ajb4 ,functions ,the ,consortium shall-- 7#a7 work with all ,states1 particularly those participating in the ,consortium1 to gather and maintain an inventory of catastrophe risk obligations held by ,state reinsurance funds and ,state residual insurance market entities2 7#b7 at the discretion of the affected members and on a conduit basis1 issue securities and other financial instruments linked to the catastrophe risks insured or reinsured through members of the ,consortium in the capital markets2 7#c7 coordinate reinsurance contracts between participating1 qualified reinsurance funds and private parties2 7#d7 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 7#b7 and 7#c7 of this section2 7#e7 use a catastrophe risk database to perform research and analysis that encourages standardization of the risk-linked securities market2 7#f7 perform any other functions1 other than assuming risk or incurring debt1 that are deemed necessary to aid in the transfer of catastrophe risk from participating ,states to private parties2 and 7#g7 submit annual reports to ,congress describing the activities of the ,consortium for the preceding year4 #ajc4 ,powers ,the ,consortium-- 7#a7 may make and perform such contracts and other agreements with any individual or other private or public entity however designated and wherever situated1 as may be necessary for carrying out the functions of the ,consortium2 and 7#b7 shall have such other powers1 other than the power to assume risk or incur debt1 as may be necessary and incident to carrying out this ,act4 #ajd4 ,nonprofit entity2 conflicts of interest2 audits 7a7 ,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 member1 founder1 contributor1 or individual4 7b7 ,conflicts of interest ,no director1 officer1 or employee of the ,consortium shall in any manner1 directly or indirectly1 participate in the deliberation upon or the determination of any question affecting his or her personal interests or the interests of any ,consortium1 partnership1 or organization in which he or she is directly or indirectly interested4 7c7 ,audits 7#a7 ,annual audit ,the financial statements of the ,consortium shall be audited annually in accordance with generally accepted auditing standards by independent certified public accountants4 7#b7 ,reports ,the report of each annual audit pursuant to paragraph 7#a7 shall be included in the annual report submitted in accordance with section #ajb7g74 #aje4 ,management 7a7 ,board of directors2 membership2 designation of chairperson 7#a7 ,board of directors ,the management of the ,consortium shall be vested in a board of directors 7referred to in this title as the ,board7 composed of not fewer than #c members4 7#b7 ,chairperson ,the ,secretary1 or the designee of the ,secretary1 shall serve as the chairperson of the ,board4 7#c7 ,membership ,the members of the ,board shall include-- 7,a7 the ,secretary of ,homeland ,security and the ,secretary of ,commerce1 or the designees of such ,secretaries1 respectively1 but only during such times as there are fewer than #b ,states participating in the ,consortium2 and 7,b7 a member from each ,state participating in the ,consortium1 who shall be appointed by such ,state4 7b7 ,bylaws ,the ,board may prescribe1 amend1 and repeal such bylaws as may be necessary for carrying out the functions of the ,consortium4 7c7 ,compensation1 actual1 necessary1 and transportation expenses 7#a7 ,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 #ecae of title #e1 ,united ,states ,code1 as in effect from time to time1 for each day 7including travel time7 during which such member is engaged in the actual performance of duties of the ,consortium4 7#b7 ,federal employees ,a member of the ,board who is an officer or employee of the ,federal ,government shall serve without additional pay 7or benefits in the nature of compensation7 for service as a member of the ,consortium4 7#c7 ,travel expenses ,members of the ,consortium shall be entitled to receive travel expenses1 including per diem in lieu of subsistence1 equivalent to those set forth in subchapter ,i of chapter #eg of title #e1 ,united ,states ,code4 7d7 ,quorum ,a majority of the ,board shall constitute a quorum4 7e7 ,executive director ,the ,board shall appoint an executive director of the ,consortium1 on such terms as the ,board may determine4 #ajf4 ,staff2 experts and consultants 7a7 ,staff 7#a7 ,appointment ,the ,board of the ,consortium may appoint and terminate such other staff as are necessary to enable the ,consortium to perform its duties4 7#b7 ,compensation ,the ,board of the ,consortium may fix the compensation of the executive director and other staff4 7b7 ,experts and consultants ,the ,board shall procure the services of experts and consultants as the ,board considers appropriate4 #ajg4 ,federal liability ,the ,federal ,government and the ,consortium shall not bear any liabilities arising from the actions of the ,consortium4 ,participating ,states shall retain all catastrophe risk until the completion of a transaction described in paragraphs 7#b7 and 7#c7 of section #ajb4 #ajh4 ,authorization of appropriations ,there are authorized to be appropriated to carry out this title #bj1jjj1jjj for each of fiscal years #bjac through #bjah4 ,,ii ,national ,homeowners' ,insurance ,stabilization ,program #bja4 ,establishment ,the ,secretary shall carry out a program under this title to make liquidity loans and catastrophic loans under section #bjb to qualified reinsurance programs to ensure the solvency of such programs1 to improve the availability and affordability of homeowners' insurance1 to provide incentive for risk transfer to the private capital and reinsurance markets1 and to spread the risk of catastrophic financial loss resulting from natural disasters and catastrophic events4 #bjb4 ,liquidity loans and catastrophic loans for ,state and regional reinsurance programs 7a7 ,contracts ,the ,secretary may enter into a contract with a qualified reinsurance program to carry out this title1 as the ,secretary may deem appropriate4 ,the contract shall include1 at a minimum1 the conditions for loan eligibility set forth in this section4 7b7 ,conditions for loan eligibility ,a loan under this section may be made only to a qualified reinsurance program and only if-- 7#a7 before the loan is made-- 7,a7 the ,state or regional reinsurance program submits to the ,secretary a report setting forth1 in such form and including such information as the ,secretary shall require1 how the program plans to repay the loan2 and 7,b7 based upon the report of the program1 the ,secretary determines that the program can meet its repayment obligation under the loan and certifies that the program can meet such obligation2 7#b7 the program cannot access capital in the private market1 including through catastrophe bonds and other securities sold through the facility created in title ,i of this ,act1 as determined by the ,secretary1 and a loan may be made to such a qualified reinsurance program only to the extent that such program cannot access capital in the private market2 7#c7 the ,secretary determines that an event has resulted in insured losses in a ,state with a qualified reinsurance program2 7#d7 the loan complies with the requirements under subsection 7d7 and or 7e71 as applicable2 and 7#e7 the loan is afforded the full faith and credit of the ,state and the ,state demonstrates to the ,secretary that it has the ability to repay the loans4 7c7 ,mandatory assistance for qualified reinsurance programs ,the ,secretary shall1 upon the request of a qualified reinsurance program and subject to subsection 7b71 make a loan under subsection 7d7 or 7e7 for such program in the amount requested by such program 7subject to the limitations under subsections 7d77#b7 and 7e77#b71 respectively74 7d7 ,liquidity loans ,a loan under this subsection for a qualified reinsurance program shall be subject to the following requirements3 7#a7 ,preconditions ,the ,secretary shall have determined that the qualified reinsurance program-- 7,a7 has a capital liquidity shortage1 in accordance with regulations that the ,secretary shall establish2 and 7,b7 cannot access capital markets at effective rates of interest lower than those provided in paragraph 7#c74 7#b7 ,amount ,the principal amount of the loan may not exceed the ceiling coverage level for the qualified reinsurance program4 7#c7 ,rate of interest ,the loan shall bear interest at an annual rate #c percentage points higher than marketable obligations of the ,treasury having the same term to maturity as the loan and issued during the most recently completed month1 as determined by the ,secretary1 or such higher rate as may be necessary to ensure that the amounts of interest paid under such loans exceed the sum of the costs 7as such term is defined in section #ejb of the ,federal ,credit ,reform ,act of #aiij 7#b ,u4,s4,c4 #ffa;a77 of such loans1 the administrative costs involved in carrying out a program under this title for such loans1 and any incidental effects on governmental receipts and outlays4 7#d7 ,term ,the loan shall have a term to maturity of not less than #e years and not more than #aj years4 7e7 ,catastrophic loans ,a loan under this subsection for a qualified reinsurance program shall be subject to the following requirements3 7#a7 ,preconditions ,the ,secretary shall have determined that an event has resulted in insured losses in a ,state with a qualified reinsurance program and that such insured losses in such ,state are in excess of #aej percent of the aggregate amount of direct written premium for privately issued property and casualty insurance1 for risks located in that ,state1 over the calendar year preceding such event1 in accordance with regulations that the ,secretary shall establish4 7#b7 ,amount ,the principal amount of the loan made pursuant to an event referred to in paragraph 7#a7 may not exceed the amount by which the insured losses sustained as a result of such event exceed the ceiling coverage level for the qualified reinsurance program4 7#c7 ,rate of interest ,the loan shall bear interest at an annual rate #j4bj percentage points higher than marketable obligations of the ,united ,states ,treasury having a term to maturity of not less than #aj years and issued during the most recently completed month1 as determined by the ,secretary1 or such higher rate as may be necessary to ensure that the amounts of interest paid under such loans exceed the sum of the costs 7as such term is defined in section #ejb of the ,federal ,credit ,reform ,act of #aiij 7#b ,u4,s4,c4 #ffa;a77 of such loans1 the administrative costs involved in carrying out a program under this title for such loans1 and any incidental effects on governmental receipts and outlays4 7#d7 ,term ,the loan shall have a term to maturity of not less than #aj years4 7f7 ,use of funds ,amounts from a loan under this section shall only be used to provide reinsurance or retrocessional coverage to underlying primary insurers or reinsurers for losses arising from all personal real property or homeowners' lines of insurance1 as defined in the ,uniform ,property ,casualty ,product ,coding ,matrix published and maintained by the ,national ,association of ,insurance ,commissioners4 ,such amounts shall not be used for any other purpose4 #bjc4 ,reports and audits ,the ,secretary shall submit a report to the ,president and the ,congress annually that identifies and describes any loans made under this title during such year and any repayments during such year of loans made under this title1 and describes actions taken to ensure accountability of loan funds4 ,the ,secretary shall provide for regular audits to be conducted for each loan made under this title1 and shall make the results of such audits publicly available4 #bjd4 ,funding 7a7 ,program fee 7#a7 ,in general ,the ,secretary may establish and collect1 from qualified reinsurance programs that are precertified pursuant to section #c7;c71 a reasonable fee1 as may be necessary to offset the expenses of the ,secretary in connection with carrying out the responsibilities of the ,secretary under this title1 including-- 7,a7 costs of developing1 implementing1 and carrying out the program under this title2 and 7,b7 costs of providing for precertification pursuant to section #c7;c7 of ,state and regional reinsurance programs as qualified reinsurance programs4 7#b7 ,adjustment ,the ,secretary may1 from time to time1 adjust the fee under paragraph 7#a7 as appropriate based on expenses of the ,secretary referred to in such paragraph4 7#c7 ,use ,any fees collected pursuant to this subsection shall be credited as offsetting collections of the ,department of the ,treasury and shall be available to the ,secretary only for expenses referred to in paragraph 7#a74 7b7 ,costs of loans2 administrative costs ,to the extent that amounts of negative credit subsidy are received by the ,secretary in any fiscal year pursuant to loans made under this title1 such amounts shall be available for costs 7as such term is defined in section #ejb of the ,federal ,credit ,reform ,act of #aiij 7#b ,u4,s4,c4 #ffa;a77 of such loans and for costs of carrying out the program under this title for such loans4 7c7 ,full taxpayer repayment ,the ,secretary shall require the full repayment of all loans made under this title4 ,if the ,secretary determines at any time that such full repayment will not made1 or is likely not to be made1 the ,secretary shall promptly submit a report to the ,congress explaining why such full repayment will not be made or is likely not to be made4