DATE:



DATE: SEPTEMBER 12, 2007

TO: NCOIL LEGISLATORS

FROM: CANDACE THORSON

RE: HOUSE HOLDS HEARING ON NATURAL CATASTROPHE BACKSTOP BILL

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Attached, please find:

• a September 7 National Underwriter article entitled Treasury Knocks Catastrophe Funding Bill

• an NCOIL summary of H.R. 3355, the Homeowners’ Defense Act of 2007

On September 6, two key subcommittees of the House Financial Services Committee held a joint hearing on H.R. 3355, introduced by freshmen Reps. Ron Klein (D-FL) and Tim Mahoney (D-FL). The bill would create a federal backstop for qualifying state insurance programs—through the use of capital markets and short-term loans.

HEARING OVERVIEW

During the more than 4 hour hearing, federal legislators expressed strong interest in further considering H.R. 3355 and engaged in often heated debate with witnesses opposed to the bill—namely, a representative of the U.S. Treasury Department.

BILL SUMMARY

H.R. 3355 would provide a backstop for state reinsurance programs that would encourage their solvency and claims-paying ability, as well as promote stable insurance markets.

Specifically, H.R. 3355 would, among other things:

• allow state catastrophe funds—that choose to participate—to pool their catastrophe risks into a newly created National Catastrophe Risk Consortium—and the Consortium would then transfer these risks into capital markets (e.g., catastrophe bonds) and via reinsurance

• authorize liquidity loans to assist in the solvency of state catastrophe funds

PROPONENTS

NAIC:

While not officially supporting H.R. 3355, the NAIC did say that H.R. 3355 met many of the organization’s 18 guiding principles for considering federal catastrophe insurance legislation.

MA State Rep. Matthew C. Patrick (D-3rd Barnstable District):

H.R. 3355 would complement a proposed MA catastrophe reinsurance pool.

National Association of Realtors (NAR):

H.R. 3355 is a good first step and should be included in a more comprehensive natural disaster bill.

OPPONENTS

U.S. Treasury Department:

H.R. 3355 would lead to federal subsidies of state catastrophe programs and, ultimately, displace private markets and unfairly impact taxpayers nationwide.

Reinsurance Association of America (RAA):

H.R. 3355 would unnecessarily crowd out the private reinsurance market (though the RAA does support using capital markets to help spread risk).

Property Casualty Insurers Association of America (PCI):

The liquidity loan provisions would set trigger levels too low, and the catastrophic loan provisions would ultimately displace the private market (though PCI does support using capital markets to help spread risk).

Georgetown Environmental Law & Policy Institute:

The bill would encourage unwise coastal development, create greater long-term risks, and unfairly impact taxpayers nationwide.

RELATED COMMENTS

The following did not specifically speak to H.R. 3355 but addressed related issues.

The Florida Coalition for Preservation urged inclusion of strong mitigation language and expressed concern over the national debt.

Swiss Re said catastrophe bonds effectively spread risk and are becoming more important.

Fermat Capital Management gave a history of the catastrophe bond market and reasons for its success.

NCOIL POSITION

Although NCOIL has no official position on H.R. 3355, NCOIL has supported the creation of state catastrophe funds when needed and has endorsed a limited, appropriate federal role in natural disaster preparedness.

For more information, please contact me via return e-mail or at 518-687-0178.

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