Earthquake Insurance Affordability Act of 2013 - Authorizes the Secretary of the Treasury to guarantee holders of debt against loss of principal or interest, or both, on debt issued by eligible state programs designed to: (1) promote the availability of private capital to provide liquidity and capacity to state earthquake (specifically, residential property) insurance programs, and (2) expedite the payment of claims under such programs and better assist financial recovery from significant earthquakes.
Prescribes operational requirements for eligible state programs which include an established earthquake insurance program that: (1) offers residential property insurance coverage for insured losses to property, contents, and additional living expenses; (2) is prohibited from requiring insurers to pool resources to provide property insurance coverage for earthquakes; (3) is based upon the best available scientific information for assessing the risk of earthquake frequency, severity, and loss; and (4) incorporates the sum of the modeled expected loss, risk financing costs, loss adjustment expense, and any other expenses necessary to operate the state program.
Includes among such operational requirements that the state: (1) has in effect and enforces, or the appropriate local governments within the state have in effect and enforce, nationally recognized building, seismic-design, and safety codes and consensus-based standards; and (2) has taken actions to establish an insurance rate structure that takes into account measures to mitigate insured losses.
Directs the Secretary to establish procedures for annual certification of an eligible state program.
Restricts to $3 billion, including interest, the aggregate principal amount of outstanding debt obligations guaranteed by the Secretary.
Makes appropriations to satisfy debt guarantee commitments.
Requires the Secretary, upon request of an eligible state program, to provide such debt guarantees.
Restricts to $1.5 billion the amount of a debt guarantee that an eligible state program receives to secure or provide claim-payment capacity for paying the insured losses and loss adjustment expenses from all events relating to a single earthquake.
Pledges the full faith and credit of the United States to the payment of all guarantees issued under this Act.
[Congressional Bills 113th Congress]
[From the U.S. Government Publishing Office]
[S. 1813 Introduced in Senate (IS)]
113th CONGRESS
1st Session
S. 1813
To establish a program to provide guarantees for debt issued by or on
behalf of State catastrophe insurance programs to assist in the
financial recovery from earthquakes and earthquake-related events.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
December 12 (legislative day, December 11), 2013
Mrs. Feinstein (for herself and Mrs. Boxer) introduced the following
bill; which was read twice and referred to the Committee on Banking,
Housing, and Urban Affairs
_______________________________________________________________________
A BILL
To establish a program to provide guarantees for debt issued by or on
behalf of State catastrophe insurance programs to assist in the
financial recovery from earthquakes and earthquake-related 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 ``Earthquake
Insurance Affordability Act of 2013''.
(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.
Sec. 3. Definitions.
Sec. 4. Eligible State programs.
Sec. 5. Establishment of debt-guarantee program.
Sec. 6. Effect of guarantee.
Sec. 7. Assessment at time of guarantee.
Sec. 8. Payment of losses.
Sec. 9. Full faith and credit.
Sec. 10. Budgetary impact; costs.
Sec. 11. Regulations.
Sec. 12. Reports.
SEC. 2. FINDINGS AND PURPOSES.
(a) Findings.--Congress finds the following:
(1) Major earthquakes are likely in the United States. For
example, the United States Geological Survey predicts that
there is a 99.7 percent chance that a magnitude 6.7 earthquake
will strike in California in the next 30 years and that there
is a 46 percent chance that a magnitude 7.5 earthquake will
strike in California in the next 30 years. Earthquakes can be
caused by volcanic or tectonic events and result in destructive
shaking of the earth, fires, landslides, volcanic eruptions,
and tsunamis.
(2) Despite the known risk of earthquakes, relatively few
homeowners have earthquake insurance. For example, in
California, 88 percent of homes insured for fire do not have
earthquake insurance. In the event of a catastrophic
earthquake, the lack of homeowner earthquake-insurance coverage
will slow recovery, create economic hardship, and increase the
risk of mortgage and other credit defaults and adversely affect
the banking system of the United States.
(3) It is important that States improve the affordability,
availability, and quality of earthquake insurance so that more
homeowners will purchase coverage. For example, California has
created the California Earthquake Authority to provide
earthquake insurance to homeowners through private-sector
insurers.
(4) It is a proper role of the Federal Government to help
prepare and protect its citizens from catastrophes such as
earthquakes and to facilitate consumer protection, victim
assistance, and individual and community recovery, including
financial recovery.
(b) Purposes.--The purposes of this Act are to establish a
program--
(1) to promote the availability of private capital to
provide liquidity and capacity to State earthquake insurance
programs; and
(2) to expedite the payment of claims under State
earthquake insurance programs and better assist the financial
recovery from significant earthquakes by authorizing the
Secretary of the Treasury to guarantee debt for such purposes.
SEC. 3. DEFINITIONS.
In this Act, the following definitions shall apply:
(1) Commitment to guarantee.--The term ``commitment to
guarantee'' means a commitment to make debt guarantees to an
eligible State program pursuant to section 5.
(2) Eligible state program.--The term ``eligible State
program'' means a State program that, pursuant to section 4, is
eligible to receive a debt guarantee under this Act.
(3) Insured loss.--The term ``insured loss'' means any loss
resulting from an earthquake or earthquake-related event that
is determined by an eligible State program to be covered by
insurance 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 an insured-loss triggering
event or events.
(5) Residential property insurance.--The term ``residential
property insurance'' means insurance coverage for--
(A) individually owned residential structures of
not more than 4 dwelling units, individually owned
condominium units, or individually owned mobile homes,
and their contents, located in a State and used
exclusively for residential purposes or a tenant's
policy written to include personal contents of a
residential unit located in the State, but shall not
include--
(i) insurance for real property or its
contents used for any commercial, industrial,
or business purpose, except a structure of not
more than 4 dwelling units rented for
individual residential purposes; or
(ii) a policy that does not include any of
the perils insured against in a standard fire
policy or any earthquake policy; or
(B) commercial residential property, which includes
property owned by a condominium association or its
members, property owned by a cooperative association,
or an apartment building.
(6) Secretary.--The term ``Secretary'' means the Secretary
of the Treasury.
(7) State.--The term ``State'' means each of the several
States of the United States, the District of Columbia, the
Commonwealth of Puerto Rico, the Commonwealth of the Northern
Mariana Islands, Guam, the United States Virgin Islands,
American Samoa, and any other territory or possession of the
United States.
SEC. 4. ELIGIBLE STATE PROGRAMS.
(a) Eligible State Programs.--A State program shall be considered
an eligible State program for purposes of this Act if the State program
or other State entity authorized to make such determinations certifies
to the Secretary, in accordance with the procedures established under
subsection (b), that the State program complies with the following
requirements:
(1) State program design.--The State program--
(A) shall be established and authorized by State
law as an earthquake insurance program that offers
residential property insurance coverage for insured
losses to property, contents, and additional living
expenses; and
(B) may not require insurers to pool resources to
provide property insurance coverage for earthquakes.
(2) Operation.--
(A) Public officials.--A majority of the members of
the governing body of the State program shall be public
officials or appointed by public officials.
(B) State financial interest.--The State shall have
a financial interest in the State program.
(C) Repayment of appropriated amounts.--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 State 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) Loss prevention and mitigation.--
(A) Mitigation of losses.--The State program shall
include provisions designed to encourage and support
programs to mitigate losses for which the State
insurance program was established to provide insurance.
(B) Operational requirements.--The State program
shall operate in a State--
(i) that has in effect and enforces, or
within which the appropriate local governments
have in effect and enforce, nationally
recognized building, seismic-design, and safety
codes and consensus-based standards; and
(ii) that has taken actions to establish an
insurance rate structure that takes into
account measures to mitigate insured losses.
(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 offered under the State
program pursuant to paragraph (1);
(B) shall be subject to a requirement under State
law that for earthquake insurance coverage made
available under the State insurance program the premium
rates charged on such insurance--
(i) shall be actuarially sound;
(ii) may not be excessive, inadequate, or
unfairly discriminatory;
(iii) shall be established based on the
best available scientific information for
assessing the risk of earthquake frequency,
severity, and loss; and
(iv) shall incorporate, and may not in the
aggregate be less than, the sum of the modeled
expected loss, risk financing costs, loss
adjustment expense, and any other expenses
necessary to operate the State program; and
(C) shall make available to all qualifying
policyholders insurance coverage and mitigation
services on a basis that is not unfairly
discriminatory.
(b) Annual Certification.--The Secretary shall establish procedures
for initial certification and annual recertification of a State program
as an eligible State program.
SEC. 5. ESTABLISHMENT OF DEBT-GUARANTEE PROGRAM.
(a) Authority of Secretary.--The Secretary is authorized and shall
have the powers and authorities necessary--
(1) to guarantee, and to enter into commitments to
guarantee, holders of debt against loss of principal or
interest, or both, on any debt issued by eligible State
programs for purposes of this Act; and
(2) to certify and recertify State catastrophe insurance
programs that cover earthquake peril to become or remain
eligible for the benefits of such a debt-guarantee program.
(b) Limit on Outstanding Debt Guarantees.--The aggregate amount of
debt covered by the Secretary's guarantees and commitments to guarantee
for all eligible State programs outstanding at any time shall not
exceed $3,000,000,000, including interest.
(c) Funding.--
(1) Appropriation of federal payments.--Subject to
subsection (b), there are hereby appropriated, out of funds in
the Treasury not otherwise appropriated, such sums as may be
necessary to satisfy debt guarantee commitments extended to
eligible State programs under this Act.
(2) Certification fee.--Upon certification or
recertification as an eligible State program under section 4, a
State program shall be charged a certification fee that the
Secretary determines, at the time of certification or
recertification, is sufficient to cover--
(A) applicable administrative costs arising from
the certification or recertification, including all
pre-certification costs and a proportional share of the
costs arising from the administration of the program
established under this Act, but in any event not to
exceed one-half of 1 percent per annum of the aggregate
principal amount of the debt for which the eligible
State program is issued a guarantee commitment; and
(B) any probable losses on the aggregate principal
amount of the debt for which the eligible State program
is issued a guarantee commitment.
(3) Rule of construction.--Any funds expended or obligated
by the Secretary for the payment of administrative expenses for
conduct of the debt-guarantee program authorized by this Act
shall be deemed appropriated at the time of such expenditure or
obligation from the certification and recertification fees
collected pursuant to paragraph (2).
(d) Conditions for Guarantee Eligibility.--A debt guarantee under
this section may be made only if the Secretary has issued a commitment
to guarantee to a certified, eligible State program. The commitment to
guarantee shall be in force for a period of 3 years from its initial
issuance and may be extended by the Secretary for 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--
(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 guarantee-eligible debt it may
incur;
(2) based on 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 such debt, by considering
relevant criteria including--
(A) par amount of debt to be issued;
(B) use of debt proceeds;
(C) proposed debt structure;
(D) term of debt outstanding;
(E) ratio of premium income to expected debt
service;
(F) review of recent quarterly financial
statements; and
(G) review of any recent credit rating provided by
a nationally recognized statistical rating
organization, as defined in section 3(a) of the
Securities Exchange Act of 1934 (15 U.S.C. 78c(a));
(3) the eligible State program enters into an agreement
with the Secretary, as the Secretary shall require, that the
eligible State program--
(A) 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;
(B) will, to the extent prudent, use any authority
or capacity to surcharge policyholders or policies of
coverage to contribute to repaying the debt guaranteed
under this subsection; and
(C) will apply annually, except in years in which
the debt is being repaid, an amount not less than 2
percent of the debt subject to the agreement toward a
combination of--
(i) mitigation initiatives; and
(ii) public education regarding the risks
of earthquakes and earthquake-related events;
(4) the commitment to guarantee specifies and requires the
payment of the fees for debt guarantee coverage; and
(5) the maximum term of the debt specified in the
commitment to guarantee does not exceed 30 years.
(e) 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 (d),
provide a guarantee under subsection (f) for the eligible State program
in the amount requested by the eligible State program.
(f) Catastrophe 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 shall
demonstrate to the satisfaction of the Secretary that insured
losses to the eligible State program arising from the event or
events covered by the commitment to guarantee are likely to
exceed 80 percent of the eligible State program's qualifying
assets available to pay claims, as calculated on the date of
the event and based on the eligible State program's most recent
quarterly financial statement filed with its domiciliary
regulator.
(2) Use of funds.--Proceeds of debt guaranteed under this
section shall be used only to pay the costs of issuing debt and
of securing or providing claim-payment capacity for paying the
insured losses and loss adjustment expenses incurred by an
eligible State program. Such amounts shall not be used for any
other purpose.
(3) Limit on guarantee for events relating to a single
earthquake.--The amount of a debt guarantee that an eligible
State program receives to secure or provide claim-payment
capacity for paying the insured losses and loss adjustment
expenses from all events relating to a single earthquake may
not be greater than $1,500,000,000.
SEC. 6. EFFECT OF GUARANTEE.
The issuance of any guarantee by the Secretary under this Act 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. 7. ASSESSMENT AT TIME OF GUARANTEE.
If the Secretary determines that the fees collected under section
5(c)(2) will not cover applicable administrative costs for, and
probable losses on, a guaranteed obligation, the Secretary shall charge
and collect a fee for each guarantee issued in an amount that the
Secretary determines, at the time of issuance of the guarantee, is
sufficient to cover such costs and probable losses.
SEC. 8. PAYMENT OF LOSSES.
(a) Payment by Secretary.--
(1) In general.--The Secretary shall pay to the duly
appointed paying agent or trustee (in this section referred to
as the ``Fiscal Agent'') for an eligible State program that
portion of the principal and interest on any debt guaranteed
under this Act that becomes due for payment but is unpaid by
the eligible State program as a result of the eligible State
program having provided insufficient funds to the Fiscal Agent
to make the payment.
(2) Time of payment.--The Secretary shall make a payment
described in paragraph (1) on the later of--
(A) the date on which the principal or interest
becomes due for payment; or
(B) the first business day after the date on which
the Secretary receives notice that the eligible State
program has failed to provide sufficient funds to the
Fiscal Agent to make the payment.
(3) Subrogation of rights.--Upon making a payment under
this subsection, the Secretary shall be subrogated to all the
rights of the ultimate recipient of the payment.
(4) Recovery from eligible state program.--The Secretary
shall be entitled to recover from an eligible State program the
amount of any payments made by the Secretary pursuant to any
guarantee entered into under this Act.
(b) Role of the Attorney General.--The Attorney General shall take
such action as may be appropriate to enforce any right accruing, and to
collect any and all sums owing, to the United States as a result of the
issuance of any guarantee under this Act.
(c) Rule of Construction.--Nothing in this section shall be
construed to preclude any forbearance for the benefit of the eligible
State program which may be agreed upon by the parties to the guaranteed
debt and approved by the Secretary, provided that budget authority for
any resulting cost, as such term is defined under the Federal Credit
Reform Act of 1990 (2 U.S.C. 661 et seq.), is available.
(d) 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 Act.
SEC. 9. FULL FAITH AND CREDIT.
The full faith and credit of the United States is pledged to the
payment of all guarantees issued under this Act with respect to
principal and interest.
SEC. 10. BUDGETARY IMPACT; COSTS.
For purposes of section 502(5) of the Federal Credit Reform Act of
1990 (2 U.S.C. 661a(5)), the cost of guarantees to be issued under this
Act shall be calculated by adjusting the discount rate in section
502(5)(E) of such Act for market risk.
SEC. 11. REGULATIONS.
The Secretary shall issue any regulations necessary to carry out
the debt-guarantee program established under this Act.
SEC. 12. REPORTS.
(a) In General.--Not later than 12 months after the date on which
the Secretary issues a guarantee under section 5 for debt issued by an
eligible State program, and annually thereafter, the eligible State
program shall submit to the Secretary and to Congress a report, in a
form prescribed by the Secretary, that contains the information
required under subsection (b).
(b) Contents.--A report under this section shall describe, with
respect to the reporting year--
(1) the benefits that the eligible State program derived
from the debt-guarantee; and
(2) the manner in which the eligible State program applied
2 percent of the guarantee amount for the purposes described in
section 5(d)(3)(C).
(c) Limitation.--To the extent practicable, the Secretary shall
limit the information required to be included in a report under this
section to information that is otherwise publicly available.
<all>
Introduced in Senate
Read twice and referred to the Committee on Banking, Housing, and Urban Affairs.
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