To establish a National Catastrophe Risks Consortium and a National Homeowners' Insurance Stabilization Program, and for other purposes.

SA 4709. Mr. NELSON of Florida (for himself, Mrs. Clinton, Mr.
Martinez, and Ms. Landrieu) submitted an amendment intended to be
proposed by him to the bill S. 2284, to amend the National Flood
Insurance Act of 1968, to restore the financial solvency of the floor
insurance fund, and for other purposes; which was ordered to lie on the
table; as follows:

At the end, add the following:

DIVISION B--HOMEOWNERS' DEFENSE ACT

SEC. 101. SHORT TITLE; TABLE OF CONTENTS.

(a) Short Title.--This division may be cited as the
``Homeowners' Defense Act of 2008''.
(b) Table of Contents.--The table of contents for this
division is as follows:

DIVISION B--HOMEOWNERS' DEFENSE ACT

Sec. 101. Short title; table of contents.
Sec. 102. Findings and purposes.
Sec. 103. Qualified reinsurance programs.
Sec. 104. Definitions.
Sec. 105. Regulations.

TITLE I--NATIONAL CATASTROPHE RISK CONSORTIUM

Sec. 111. Establishment; status; principal office; membership.
Sec. 112. Functions.
Sec. 113. Powers.
Sec. 114. Nonprofit entity; conflicts of interest; audits.
Sec. 115. Management.
Sec. 116. Staff; experts and consultants.
Sec. 117. Federal liability.
Sec. 118. Authorization of appropriations.

TITLE II--NATIONAL HOMEOWNERS' INSURANCE STABILIZATION PROGRAM

Sec. 201. Establishment.
Sec. 202. Liquidity loans and catastrophic loans for State and regional
reinsurance programs.
Sec. 203. Reports and audits.
Sec. 204. Funding.

SEC. 102. 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 (known as timing risk), 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 existing
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 insurers and reinsurers, if appropriately
backstopped themselves, can absorb catastrophic risk borne by
private insurers without bearing timing risk, and thus enable
all insurers (whether State-operated or privately owned) 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 methods.
(b) Purposes.--The purposes of this division 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 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.

SEC. 103. QUALIFIED REINSURANCE PROGRAMS.

(a) In General.--For purposes of this division 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 any new construction, substantial
rehabilitation, and renovation insured or reinsured by the
program complies with applicable State or local government
building, fire, and safety 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 expected annualized cost of all claims, loss
adjustment expenses, and all administrative costs of
reinsurance coverage offered; and
(E) encourage State authorized insurance and reinsurance
entities within that State to establish rates that do not
involve cross-subsidization between any separate property

[[Page S3834]]

and casualty lines covered under the State authorized
insurance or reinsurance entity; and
(7) complies with such additional organizational,
underwriting, and financial requirements as the Secretary
shall, by regulation, provide to carry out the purposes of
this division.
(b) Transitional Mechanisms.--For the 5-year period
beginning on the date of enactment of this division, in the
case of a State that does not have a qualified reinsurance
program for the State, a State residual insurance market
entity for such State shall be considered to be a qualified
reinsurance program, but only if such State residual
insurance market entity was in existence before such date of
enactment.
(c) Precertification.--The Secretary shall establish
procedures and standards for State and regional reinsurance
programs and the State residual insurance market entities
described in subsection (b) to apply to the Secretary at any
time for certification (and recertification) as qualified
reinsurance programs.
(d) 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 division.

SEC. 104. DEFINITIONS.

For purposes of this division, 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, under law, that could be
incurred at any time by the qualified reinsurance program.
(2) Commission.--The term ``Commission'' means the National
Commission on Natural Catastrophe Preparation and Protection
established under title II.
(3) Consortium.--The term ``Consortium'' means the National
Catastrophic Risk Consortium established under title I.
(4) Insured loss.--The term ``insured loss'' means any loss
insured by a qualified reinsurance program.
(5) Qualified reinsurance program.--The term ``qualified
reinsurance program'' means a State or regional program that
meets the requirements of section 103.
(6) Secretary.--The term ``Secretary'' means the Secretary
of the Treasury.
(7) 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. 105. REGULATIONS.

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

TITLE I--NATIONAL CATASTROPHE RISK CONSORTIUM

SEC. 111. ESTABLISHMENT; STATUS; PRINCIPAL OFFICE;
MEMBERSHIP.

(a) Establishment.--There is established an entity to be
known as the ``National Catastrophe Risk 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 shall be eligible to
participate in the Consortium.

SEC. 112. 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
and State residual insurance market entities;
(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.

SEC. 113. 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 division.

SEC. 114. 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 112(7).

SEC. 115. 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 fewer than 3 members.
(2) Chairperson.--The Secretary, 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 2 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. 116. 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. 117. 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 112.

SEC. 118. AUTHORIZATION OF APPROPRIATIONS.

There are authorized to be appropriated to carry out this
title $20,000,000 for each of fiscal years 2009 through 2014.

TITLE II--NATIONAL HOMEOWNERS' INSURANCE STABILIZATION PROGRAM

SEC. 201. ESTABLISHMENT.

The Secretary 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 provide incentive for 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 STATE
AND REGIONAL REINSURANCE PROGRAMS.

(a) Contracts.--The Secretary may enter into a contract
with a qualified reinsurance

[[Page S3835]]

program to carry out this title, 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 State or regional 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; and
(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;
(2) the program cannot access capital in the private
market, including through catastrophe bonds and other
securities sold through the facility created in title I of
this division, 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;
(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) and or (e), as applicable; and
(5) 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 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 markets at effective rates of
interest lower than those provided in paragraph (3).
(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 privately issued
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 United States 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 real property or homeowners'
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 103(c), 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 103(c) 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 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.
______