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Government and Private Sector Solutions: Analysis of H.R. 219

Explore the impact of H.R. 219 on homeowners' insurance availability, federal reinsurance programs, and state initiatives. Understand the role of AAA, CPC, and the Federal Reinsurance Program Design.

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Government and Private Sector Solutions: Analysis of H.R. 219

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  1. Government and Private Sector Solutions:Analysis of H.R. 219 Gregory Vass, Casualty Policy AnalystAmerican Academy of Actuaries CAS Seminar on Catastrophe IssuesNew Orleans, LA October 23, 1998

  2. The American Academy of Actuaries (AAA) and H.R. 219 • AAA is the public policy organization for actuaries of all specialties within the United States • AAA acts as the public information organization for the profession • AAA is nonpartisan and does not advocate • AAA presents clear, actuarial analysis

  3. Role of the Casualty Practice Council (CPC) in the Academy • CPC is composed of key Academy member volunteers in the P&C area • CAS and Actuarial Standards Board also represented on CPC • CPC ensures peer review and objectivity of Academy work

  4. History of H.R. 219 (Homeowners’ Insurance Availability Act) • Bill was referred to the Subcommittee. on Housing on 2/14/97 • At Congress’s request, AAA commented on subcommittee draft on 11/12/97 • Passed out of subcommittee on 2/4/98, (16-6 vote) • Full committee (House Banking) held hearings 4/23/98 (AAA testified), passed full committee (33-12 vote) on 7/15/98

  5. Congressional Findings in H.R. 219 • Rising costs jeopardize ability of many consumers to adequately insure their homes • Lack of capacity threatens to increase number of uninsured homes which could increase mortgage defaults and strain the Federal banking system • Some states have intervened to ensure continued availability of homeowners insurance

  6. Congressional Findings in H.R. 219 (cont’d) • It is appropriate that efforts to improve insurance availability be implemented at state level • State programs may be adequate to insure most natural disasters, but a small percentage of events could exceed the capacity of these programs

  7. Congressional Findings in H.R. 219 (cont’d) • A Federal reinsurance program will improve the effectiveness of state initiatives and help ensure that homeowners claims will be paid in the event of a large natural catastrophe • Any Federal program must be founded upon sound actuarial principles and priced in a manner that minimizes the potential impact on the Treasury

  8. Features of H.R. 219 • Reinsurance for State Insurance Programs ,not the insurance industry • Homeowners coverage only • Perils covered are limited to: • Earthquakes (including resulting fires and tsunamis) • Tropical cyclones (w/ winds of over 75 mph)

  9. Federal Reinsurance Program Design • A single annual limit of up to $25 Billion • Attachment point set at greater of : • $2 billion in covered losses; • Clams paying capacity of state program; or, • Amount determined by a new National Commission (only applies to newly formed state programs)

  10. Federal Reinsurance Program Design (cont’d) • “Payback” feature: State program ultimately reimburses Federal government for any reinsurance protection provided

  11. H.R 219 - Other Features(commission) • H.R. 219 forms a commission to address catastrophe risks and loss costs • Membership in this10-person group would include at least four actuaries and a variety of other professionals knowledgeable in catastrophe issues and mitigation • Commission only advises Treasury on estimated loss costs with the new reinsurance contracts

  12. Academy Catastrophe Working Group Membership Paul O’Connell, FCAS, FCIA, MAAA, Chair David Hays, FCAS, MAAA Ron Kozlowski, FCAS, MAAA Glenn Meyers, FCAS, MAAA Patsy Webster, FCAS, MAAA Jim Wickwire, FCAS, MAAA

  13. Testimony to House Banking on H.R. 219 • Comments focused on: • Attachment point and limit • Cost of contract including risk load • Interference with private market

  14. H.R. 219 and Interference with the Private Market • Need to test need for program on a regular basis • Avoid codification of minimum risk load

  15. Attachment Point in H.R. 219 • Needs to not encourage formation of new government programs • Issue of funding gaps between state program capacity and federal attachment point needs to be addressed

  16. Cost of Contract (including Risk Load) • Computer modeling as a basis for pricing • Risk load and repayment terms to Federal government issues exist (is there any risk transfer?)

  17. Changes to H.R. 219 and prognosis for next Congress • There have not been significant changes in the latest draft relating to previous AAA comments • H.R. 219 likely to be reintroduced early in session and still has some momentum • The Academy will continue to work with Congress if a new bill progresses next year

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