H.R.3355 - Homeowners' Defense Act of 2007110th Congress (2007-2008)
|Sponsor:||Rep. Klein, Ron [D-FL-22] (Introduced 08/03/2007)|
|Committees:||House - Financial Services | Senate - Banking, Housing, and Urban Affairs|
|Committee Reports:||H. Rept. 110-419|
|Latest Action:||Senate - 11/13/2007 Received in the Senate and Read twice and referred to the Committee on Banking, Housing, and Urban Affairs. (All Actions)|
|Roll Call Votes:||There have been 7 roll call votes|
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Text: H.R.3355 — 110th Congress (2007-2008)All Information (Except Text)
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Referred in Senate (11/13/2007)
[Congressional Bills 110th Congress] [From the U.S. Government Printing Office] [H.R. 3355 Referred in Senate (RFS)] 1st Session H. R. 3355 _______________________________________________________________________ IN THE SENATE OF THE UNITED STATES November 13, 2007 Received; read twice and referred to the Committee on Banking, Housing, and Urban Affairs _______________________________________________________________________ AN ACT To ensure the availability and affordability of homeowners' insurance coverage for catastrophic events. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE; TABLE OF CONTENTS. (a) Short Title.--This Act may be cited as the ``Homeowners' Defense Act of 2007''. (b) Table of Contents.--The table of contents for this Act is as follows: Sec. 1. Short title; table of contents. Sec. 2. Findings and purposes. TITLE I--NATIONAL CATASTROPHE RISK CONSORTIUM Sec. 101. Establishment; status; principal office; membership. Sec. 102. Functions. Sec. 103. Powers. Sec. 104. Nonprofit entity; conflicts of interest; audits. Sec. 105. Management. Sec. 106. Staff; experts and consultants. Sec. 107. Federal liability. Sec. 108. Authorization of appropriations. TITLE II--NATIONAL HOMEOWNERS' INSURANCE STABILIZATION PROGRAM Sec. 201. Establishment. Sec. 202. Liquidity loans and catastrophic loans for qualified reinsurance programs. Sec. 203. Reports and audits. Sec. 204. Funding. TITLE III--REINSURANCE COVERAGE FOR QUALIFIED REINSURANCE 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--GENERAL PROVISIONS Sec. 401. Qualified reinsurance programs. Sec. 402. Study and conditional coverage of commercial residential lines of insurance. Sec. 403. Definitions. Sec. 404. Regulations. SEC. 2. FINDINGS AND PURPOSES. (a) Findings.--The Congress finds that-- (1) the United States has a history of catastrophic natural disasters, including hurricanes, tornadoes, flood, fire, earthquakes, and volcanic eruptions; (2) although catastrophic natural disasters occur infrequently, they will continue to occur and are predictable; (3) such disasters generate large economic losses and a major component of those losses comes from damage and destruction to homes; (4) for the majority of Americans, their investment in their home represents their single biggest asset and the protection of that investment is paramount to economic and social stability; (5) historically, when a natural disaster eclipses the ability of the private industry and a State to manage the loss, the Federal Government has stepped in to provide the funding and services needed for recovery; (6) the cost of such Federal ``bail-outs'' are borne by all taxpayers equally, as there is no provision to repay the money and resources provided, which thereby unfairly burdens citizens who live in lower risk communities; (7) as the risk of catastrophic losses grows, so do the risks that any premiums collected by private insurers for extending coverage will be insufficient to cover future catastrophes, and private insurers, in an effort to protect their shareholders and policyholders (in the case of mutually- owned companies), have thus significantly raised premiums and curtailed insurance coverage in States exposed to major catastrophes; (8) such effects on the insurance industry have been harmful to economic activity in States exposed to major catastrophes and have placed significant burdens on residents of such States; (9) Hurricanes Katrina, Rita, and Wilma struck the United States in 2005, causing over $200,000,000,000 in total economic losses, and insured losses to homeowners in excess of $50,000,000,000; (10) since 2004, the Congress has appropriated more than $58,000,000,000 in disaster relief to the States affected by natural catastrophes; (11) the Federal Government has provided and will continue to provide resources to pay for losses from future catastrophes; (12) when Federal assistance is provided to the States, accountability for Federal funds disbursed is paramount; (13) the Government Accountability Office or other appropriate agencies must have the means in place to confirm that Federal funds for catastrophe relief have reached the appropriate victims and have contributed to the recovery effort as efficiently as possible so that taxpayer funds are not wasted and citizens are enabled to rebuild and resume productive activities as quickly as possible; (14) States that are recipients of Federal funds must be responsible to account for and provide an efficient means for distribution of funds to homeowners to enable the rapid rebuilding of local economies after a catastrophic event without unduly burdening taxpayers who live in areas seldom affected by natural disasters; (15) State insurance and reinsurance programs can provide a mechanism for States to exercise that responsibility if they appropriately underwrite and price risk, and if they pay claims quickly and within established contractual terms; and (16) State catastrophe reinsurance programs, if appropriately structured and regulated, assume catastrophic risk borne by private insurers without incurring many of the additional costs imposed on private insurers, and thus enable all insurers within the State to underwrite and price coverage at rates designed to encourage property owners to acquire levels of insurance appropriate to their individual risks. (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) use a catastrophe risk database to perform research and analysis that encourages standardization of the risk-linked securities market; (6) perform any other functions, other than assuming risk or incurring debt, that are deemed necessary to aid in the transfer of catastrophe risk from participating States to private parties; and (7) submit annual reports to Congress describing the activities of the Consortium for the preceding year, 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). SEC. 105. MANAGEMENT. (a) Board of Directors; Membership; Designation of Chairperson.-- (1) Board of directors.--The management of the Consortium shall be vested in a board of directors (referred to in this title as the ``Board'') composed of not less than 3 members. (2) Chairperson.--The Secretary of Treasury, or the designee of the Secretary, shall serve as the chairperson of the Board. (3) Membership.--The members of the Board shall include-- (A) the Secretary of Homeland Security and the Secretary of Commerce, or the designees of such Secretaries, respectively, but only during such times as there are fewer than two States participating in the Consortium; and (B) a member from each State participating in the Consortium, who shall be appointed by such State. (b) Bylaws.--The Board may prescribe, amend, and repeal such bylaws as may be necessary for carrying out the functions of the Consortium. (c) Compensation, Actual, Necessary, and Transportation Expenses.-- (1) Non-federal employees.--A member of the Board who is not otherwise employed by the Federal Government shall be entitled to receive the daily equivalent of the annual rate of basic pay payable for level IV of the Executive Schedule under section 5315 of title 5, United States Code, as in effect from time to time, for each day (including travel time) during which such member is engaged in the actual performance of duties of the Consortium. (2) Federal employees.--A member of the Board who is an officer or employee of the Federal Government shall serve without additional pay (or benefits in the nature of compensation) for service as a member of the Consortium. (3) Travel expenses.--Members of the Consortium shall be entitled to receive travel expenses, including per diem in lieu of subsistence, equivalent to those set forth in subchapter I of chapter 57 of title 5, United States Code. (d) Quorum.--A majority of the Board shall constitute a quorum. (e) Executive Director.--The Board shall appoint an executive director of the Consortium on such terms as the Board may determine. SEC. 106. STAFF; EXPERTS AND CONSULTANTS. (a) Staff.-- (1) Appointment.--The Board of the Consortium may appoint and terminate such other staff as are necessary to enable the Consortium to perform its duties. (2) Compensation.--The Board of the Consortium may fix the compensation of the executive director and other staff. (b) Experts and Consultants.--The Board shall procure the services of experts and consultants as the Board considers appropriate. SEC. 107. FEDERAL LIABILITY. The Federal Government and the Consortium shall not bear any liabilities arising from the actions of the Consortium. Participating States shall retain all catastrophe risk until the completion of a transaction described in paragraphs (2) and (3) of section 102. SEC. 108. AUTHORIZATION OF APPROPRIATIONS. There are authorized to be appropriated to carry out this title $20,000,000 for each of fiscal years 2008 through 2013. TITLE II--NATIONAL HOMEOWNERS' INSURANCE STABILIZATION PROGRAM SEC. 201. ESTABLISHMENT. The Secretary of the Treasury shall carry out a program under this title to make liquidity loans and catastrophic loans under section 202 to qualified reinsurance programs to ensure the solvency of such programs, to improve the availability and affordability of homeowners' insurance, to incent risk transfer to the private capital and reinsurance markets, and to spread the risk of catastrophic financial loss resulting from natural disasters and catastrophic events. SEC. 202. LIQUIDITY LOANS AND CATASTROPHIC LOANS FOR QUALIFIED REINSURANCE PROGRAMS. (a) Contracts.--The Secretary may enter into a contract with a qualified reinsurance program to carry out the purposes of this Act as the Secretary may deem appropriate. The contract shall include, at a minimum, the conditions for loan eligibility set forth in this section. (b) Conditions for Loan Eligibility.--A loan under this section may be made only to a qualified reinsurance program and only if-- (1) before the loan is made-- (A) the qualified reinsurance program submits to the Secretary a report setting forth, in such form and including such information as the Secretary shall require, how the program plans to repay the loan; (B) based upon the report of the program, the Secretary determines that the program can meet its repayment obligation under the loan and certifies that the program can meet such obligation; and (C) the State or regional reinsurance program enters into an agreement with the Secretary, as the Secretary shall require, that the State 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 loan; (2) the program cannot access capital in the private market at a commercially reasonable rate, including through catastrophe bonds and other securities sold through the facility created in title I of this Act, as determined by the Secretary, and a loan may be made to such a qualified reinsurance program only to the extent that such program cannot access capital in the private market at a commercially reasonable rate; (3) the Secretary determines that an event has resulted in insured losses in a State with a qualified reinsurance program; (4) the loan complies with the requirements under subsection (d) or (e), as applicable; and (5) the State demonstrates to the Secretary that it has the ability to repay the loans. (c) Mandatory Assistance for Qualified Reinsurance Programs.--The Secretary shall upon the request of a qualified reinsurance program and subject to subsection (b), make a loan under subsection (d) or (e) for such program in the amount requested by such program (subject to the limitations under subsections (d)(2) and (e)(2), respectively). (d) Liquidity Loans.--A loan under this subsection for a qualified reinsurance program shall be subject to the following requirements: (1) Preconditions.--The Secretary shall have determined that the qualified reinsurance program-- (A) has a capital liquidity shortage, in accordance with regulations that the Secretary shall establish; and (B) cannot access capital in the private markets at a commercially reasonable rate. (2) Amount.--The principal amount of the loan may not exceed the ceiling coverage level for the qualified reinsurance program. (3) Rate of interest.--The loan shall bear interest at an annual rate 3 percentage points higher than marketable obligations of the Treasury having the same term to maturity as the loan and issued during the most recently completed month, as determined by the Secretary, or such higher rate as may be necessary to ensure that the amounts of interest paid under such loans exceed the sum of the costs (as such term is defined in section 502 of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) of such loans, the administrative costs involved in carrying out a program under this title for such loans, and any incidental effects on governmental receipts and outlays. (4) Term.--The loan shall have a term to maturity of not less than 5 years and not more than 10 years. (e) Catastrophic Loans.--A loan under this subsection for a qualified reinsurance program shall be subject to the following requirements: (1) Preconditions.--The Secretary shall have determined that an event has resulted in insured losses in a State with a qualified reinsurance program and that such insured losses in such State are in excess of 150 percent of the aggregate amount of direct written premium for property and casualty insurance, for risks located in that State, over the calendar year preceding such event, in accordance with regulations that the Secretary shall establish. (2) Amount.--The principal amount of the loan made pursuant to an event referred to in paragraph (1) may not exceed the amount by which the insured losses sustained as a result of such event exceed the ceiling coverage level for the qualified reinsurance program. (3) Rate of interest.--The loan shall bear interest at an annual rate 0.20 percentage points higher than marketable obligations of the Treasury having a term to maturity of not less than 10 years and issued during the most recently completed month, as determined by the Secretary, or such higher rate as may be necessary to ensure that the amounts of interest paid under such loans exceed the sum of the costs (as such term is defined in section 502 of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) of such loans, the administrative costs involved in carrying out a program under this title for such loans, and any incidental effects on governmental receipts and outlays. (4) Term.--The loan shall have a term to maturity of not less than 10 years. (f) Use of Funds.--Amounts from a loan under this section shall only be used to provide reinsurance or retrocessional coverage to underlying primary insurers or reinsurers for losses arising from all personal residential lines of insurance, as defined in the Uniform Property & Casualty Product Coding Matrix published and maintained by the National Association of Insurance Commissioners. Such amounts shall not be used for any other purpose. SEC. 203. REPORTS AND AUDITS. The Secretary shall submit a report to the President and the Congress annually that identifies and describes any loans made under this title during such year and any repayments during such year of loans made under this title, and describes actions taken to ensure accountability of loan funds. The Secretary shall provide for regular audits to be conducted for each loan made under this title and shall make the results of such audits publicly available. SEC. 204. FUNDING. (a) Program Fee.-- (1) In general.--The Secretary may establish and collect, from qualified reinsurance programs that are precertified pursuant to section 401(d), a reasonable fee, as may be necessary to offset the expenses of the Secretary in connection with carrying out the responsibilities of the Secretary under this title, including-- (A) costs of developing, implementing, and carrying out the program under this title; and (B) costs of providing for precertification pursuant to section 401(d) of State and regional reinsurance programs as qualified reinsurance programs. (2) Adjustment.--The Secretary may, from time to time, adjust the fee under paragraph (1) as appropriate based on expenses of the Secretary referred to in such paragraph. (3) Use.--Any fees collected pursuant to this subsection shall be credited as offsetting collections of the Department of the Treasury and shall be available to the Secretary only for expenses referred to in paragraph (1). (b) Costs of Loans; Administrative Costs.--To the extent that amounts of negative credit subsidy are received by the Secretary in any fiscal year pursuant to loans made under this title, such amounts shall be available for costs (as such term is defined in section 502 of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) of such loans and for costs of carrying out the program under this title for such loans. (c) Full Taxpayer Repayment.--The Secretary shall require the full repayment of all loans made under this title. If the Secretary determines at any time that such full repayment will not be made, or is likely not to be made, the Secretary shall promptly submit a report to the Congress explaining why such full repayment will not be made or is likely not to be made. The Secretary may not accept any repayment of any loan made under this title that does not comply with the agreement for such loan entered into in accordance with section 202(b)(1)(C). TITLE III--REINSURANCE COVERAGE FOR QUALIFIED REINSURANCE PROGRAMS SEC. 301. PROGRAM AUTHORITY. Subject to section 304(c), the Secretary of the Treasury, shall make available for purchase, only by qualified reinsurance programs (as such term is defined in section 401), contracts for reinsurance coverage under this title. SEC. 302. CONTRACT PRINCIPLES. Contracts for reinsurance coverage made available under this title-- (1) shall not displace or compete with the private insurance or reinsurance markets or the capital market; (2) shall minimize the administrative costs of the Federal Government; and (3) shall provide coverage based solely on insured losses covered by the qualified reinsurance program purchasing the contract. SEC. 303. TERMS OF REINSURANCE CONTRACTS. (a) Minimum Attachment Point.--Notwithstanding any other provision of this title, a contract for reinsurance coverage under this title for a qualified reinsurance program may not be made available or sold unless the contract requires that the qualified reinsurance program sustain an amount of retained losses from events in an amount, as determined by the Secretary, that is equal to the amount of losses projected to be incurred from a single event of such magnitude that it has a 0.5 percent chance of being equaled or exceeded in any year. (b) 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, subject to section 304, be equal to 90 percent of the amount of insured losses of the qualified reinsurance program in excess of the amount of retained losses that the contract requires, pursuant to subsection (a), to be incurred by such program. (c) Maturity.--The term of each contract for reinsurance coverage under this title shall not exceed 1 year or such other term as the Secretary may determine. (d) Payment Condition.--Each contract for reinsurance coverage under this title shall authorize claims payments to the qualified reinsurance program purchasing the coverage only for insured losses provided under the contract. (e) Multiple Events.--The contract shall cover any insured losses from one or more events that may occur during the term of the contract and shall provide that if multiple events occur, the retained losses requirement under subsection (a) shall apply on a calendar year basis, in the aggregate and not separately to each individual event. (f) Timing of Claims.--Claims under a contract for reinsurance coverage under this title shall include only insurance claims that are reported to the qualified reinsurance program within the 3-year period beginning upon the event or events for which payment under the contract is provided. (g) Actuarial Pricing.--The price of coverage under a reinsurance contract under this title shall be an amount, established by the Secretary at a level that annually produces expected premiums that shall be sufficient to pay the reasonably anticipated cost of all claims, loss adjustment expenses, all administrative costs of reinsurance coverage offered under this title, and any such outwards reinsurance, as described in section 305(c)(3), as the Secretary considers prudent taking into consideration the demand for reinsurance coverage under this title and the limits specified in section 304. (h) Information.--Each contract for reinsurance coverage under this title shall contain a condition providing that the Secretary may require the qualified reinsurance program that is covered under the contract to submit to the Secretary all information on the qualified reinsurance program relevant to the duties of the Secretary under this title. (i) Others.--Contracts for reinsurance coverage under this title shall contain such other terms as the Secretary considers necessary to carry out this title and to ensure the long-term financial integrity of the program under this title. SEC. 304. MAXIMUM FEDERAL LIABILITY. (a) In General.--Subject to subsection (b) and notwithstanding any other provision of law, the aggregate potential liability for payment of claims under all contracts for reinsurance coverage under this title sold in any single year by the Secretary shall not exceed $200,000,000,000 or such lesser amount as is determined by the Secretary based on review of the market for reinsurance coverage under this title. (b) Limitation.--The authority of the Secretary to enter into contracts for reinsurance coverage under this title shall be effective for any fiscal year only to such extent or in such amounts as are or have been provided in appropriation Acts for such fiscal year for the aggregate potential liability for payment of claims under all contracts for reinsurance coverage under this title. SEC. 305. FEDERAL NATURAL CATASTROPHE REINSURANCE FUND. (a) Establishment.--There is established within the Treasury of the United States a fund to be known as the Federal Natural Catastrophe Reinsurance Fund (in this section referred to as the ``Fund''). (b) Credits.--The Fund shall be credited with-- (1) amounts received annually from the sale of contracts for reinsurance coverage under this title; (2) any amounts appropriated under section 304; and (3) any amounts earned on investments of the Fund pursuant to subsection (d). (c) Uses.--Amounts in the Fund shall be available to the Secretary only for the following purposes: (1) Contract payments.--For payments to purchasers covered under contracts for reinsurance coverage for eligible losses under such contracts. (2) Administrative expenses.--To pay for the administrative expenses incurred by the Secretary in carrying out the reinsurance program under this title. (3) Outwards reinsurance.--To obtain retrocessional or other reinsurance coverage of any kind to cover risk reinsured under contracts for reinsurance coverage made available under this title. (d) Investment.--If the Secretary determines that the amounts in the Fund are in excess of current needs, the Secretary may invest such amounts as the Secretary considers advisable in obligations issued or guaranteed by the United States. SEC. 306. REGULATIONS. The Secretary shall issue any regulations necessary to carry out the program for reinsurance coverage under this title. TITLE IV--GENERAL PROVISIONS SEC. 401. QUALIFIED REINSURANCE PROGRAMS. (a) In General.--For purposes of this Act only, a program shall be considered to be a qualified reinsurance program if the program-- (1) is authorized by State law for the purposes described in this section; (2) is an entity in which the authorizing State maintains a material, financial interest; (3) provides reinsurance or retrocessional coverage to underlying primary insurers or reinsurers for losses arising from all personal residential lines of insurance, as defined in the Uniform Property & Casualty Product Coding Matrix published and maintained by the National Association of Insurance Commissioners; (4) has a governing body, a majority of whose members are public officials; (5) provides reinsurance or retrocessional coverage to underlying primary insurers or reinsurers for losses in excess of such amount that the Secretary has determined represents a catastrophic event in that particular State; (6) is authorized by a State that has in effect such laws, regulations, or other requirements, as the Secretary shall by regulation provide, that-- (A) ensure, to the extent that reinsurance coverage made available under the qualified reinsurance program results in any cost savings in providing insurance coverage for risks in such State, such cost savings are reflected in premium rates charged to consumers for such coverage; (B) require that 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; (C) require State authorized insurance entities within that State to establish an insurance rate structure that takes into account measures to mitigate insurance losses; (D) require State authorized insurance and reinsurance entities within that State to establish rates at a level that annually produces expected premiums that shall be sufficient to pay the reasonably anticipated cost of all claims, loss adjustment expenses, and all administrative costs of the insurance or reinsurance coverage offered by such entities, and any such outwards reinsurance as the program administrator deems prudent; and (E) discourage price gouging in any disaster area located within the State; (7) to the extent possible, seeks to encourage appropriate State and local government units to develop comprehensive land use and zoning plans that include natural hazard mitigation; (8) to the extent possible, seeks to avoid cross- subsidization between any separate property and casualty lines covered under the State authorized insurance or reinsurance entity; (9) complies with the risk-based capital requirements under subsection (b); (10) complies with such additional organizational, underwriting, and financial requirements as the Secretary shall, by regulation, provide to carry out the purposes of this Act; and (11) has been certified by the Secretary, for such year, in accordance with an annual certification process established by the Secretary for such purpose, as being in compliance with the requirements under paragraphs (1) through (10). (b) Risk-Based Capital Requirements.-- (1) In general.--Except for programs deemed to be qualified reinsurance programs pursuant to subsection (c), each qualified reinsurance program shall maintain risk-based capital in accordance with requirements established by the Secretary, in consultation with the National Association of Insurance Commissioners and consistent with the Risk-Based Capital Model Act of the National Association of Insurance Commissioners, and take into consideration asset risk, credit risk, underwriting risk, and such other relevant risk as determined by the Secretary. (2) Treatment of access to liquidity loans.-- (A) In general.--To the extent that a qualified reinsurance program is deficient in complying with any aspect of the risk-based capital requirements established pursuant to this subsection, the Secretary shall recognize and give credit for the ability of such qualified reinsurance program to access capital through the liquidity loan program established under section 202(d). (B) Annual diminution.--The extent of credit recognized and given for a qualified reinsurance program pursuant to subparagraph (A) shall diminish annually in a proportion equal to the earned premium for the program for the prior calendar year. (C) Reset upon occurrence of catastrophe.--To the extent that a qualified reinsurance program is obligated to pay losses as a result of the occurrence of a catastrophe, the Secretary shall increase the credit recognized and given for the program pursuant to subparagraph (A) by an amount equal to the losses paid by the program as a result of the catastrophe. (D) Resumption after catastrophe.--After a reset occurs pursuant to subparagraph (C) for a qualified reinsurance program, the diminution described in subparagraph (B) shall resume and continue until the program has accumulated capital sufficient to satisfy the risk-based capital requirement determined by the Secretary to be appropriate given the ceiling coverage level of that particular qualified reinsurance program. (3) Report.--For each calendar year, each qualified reinsurance program shall prepare and submit to the Secretary a report identifying its risk based capital, at such time after the conclusion of such year, and containing such information and in such form, as the Secretary shall require. (c) Transitional Mechanisms.--For the five-year period beginning on the date of the enactment of this Act, in the case of a State that does not have a qualified reinsurance program for the State, a State residual insurance market entity, or State-sponsored provider of natural catastrophe insurance, for such State shall be considered to be a qualified reinsurance 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) Precertification.--The Secretary shall establish procedures and standards for State and regional reinsurance programs and the State residual insurance market entities described in section (b) to apply to the Secretary at any time for certification (and recertification) as qualified reinsurance programs. (e) Reinsurance To Cover Exposure.--This section may not be construed to limit or prevent any insurer from obtaining reinsurance coverage for insured losses retained by insurers pursuant to this section, nor shall the obtaining of such coverage affect the calculation of the amount of any loan under this title. SEC. 402. STUDY AND CONDITIONAL COVERAGE OF COMMERCIAL RESIDENTIAL LINES OF INSURANCE. (a) Study.--The Secretary shall study, on an expedited basis, the need for and impact of expanding the programs established by this Act to apply to insured losses of qualified reinsurance programs for losses arising from all commercial insurance policies which provide coverage for properties that are composed predominantly of residential rental units. The Secretary shall consider the catastrophic insurance and reinsurance market for commercial residential properties, and specifically the availability of adequate private insurance coverage when an insured event occurs, the impact any such capacity restrictions has on housing affordability for renters, and the likelihood that such an expansion of the program would increase insurance capacity for this market segment. (b) Conditional Coverage.--To the extent that the Secretary determines that there is such a need to expand such programs and such expansion will be effective in increasing insurance capacity for the commercial residential insurance market, the Secretary shall, in consultation with the National Association of Insurance Commissioners-- (1) apply the provisions of this Act, as appropriate, to insured losses of a qualified reinsurance program for losses arising from commercial insurance policies which provide coverage for properties that are composed predominantly of residential rental units, as described in paragraph (a); and (2) provide such restrictions, limitations, or conditions with respect to the programs under this Act that the Secretary deems appropriate, based on the study under subsection (a). SEC. 403. DEFINITIONS. For purposes of this Act, the following definitions shall apply: (1) Ceiling coverage level.--The term ``ceiling coverage level'' means, with respect to a qualified reinsurance program, the maximum liability that could be incurred at any time by the qualified reinsurance program. (2) Insured loss.--The term ``insured loss'' means any loss insured by a qualified reinsurance program. (3) Price gouging.--The term ``price gouging'' means the providing of any consumer good or service by a supplier related to repair or restoration of property damaged from a catastrophe for a price that the supplier knows or has reason to know is greater, by at least the percentage set forth in a State law or regulation prohibiting such act (not withstanding any real cost increase due to any attendant business risk and other reasonable expenses that result from the major catastrophe involved), than the price charged by the supplier for such consumer good or service immediately before the disaster. (4) Qualified reinsurance program.--The term ``qualified reinsurance program'' means a State or regional program that meets the requirements under section 401. (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. SEC. 404. REGULATIONS. The Secretary shall issue such regulations as may be necessary to carry out this Act. Passed the House of Representatives November 8, 2007. Attest: LORRAINE C. MILLER, Clerk.