Eligible State programs

(a) Eligible State programs A State program shall be considered an eligible State program for purposes of this Act if the Secretary certifies, in accordance with the procedures established under subsection (c), that the State program complies with the following requirements: (1) State program design The State program is established and authorized by State law as an insurance program or a reinsurance program that is designed to improve private insurance markets and that offers residential property insurance coverage for losses arising from any personal residential line of insurance, as defined in the Uniform Property and Casualty Product Coding Matrix of the National Association of Insurance Commissioners. (2) Operation The State program shall meet the following requirements: (A) A majority of the members of the governing body of the State program shall be public officials or appointed by public officials. (B) The State shall have a financial interest in the State program. (C) 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 as determined by the individual State 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 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) Prevention and mitigation (A) Mitigation of losses The State program shall include provisions designed to encourage and support programs to mitigate losses from natural catastrophes for which the State insurance or reinsurance program was established to provide insurance coverage. (B) Operational requirements The State program shall operate in a State that— (i) requires 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; (ii) has taken actions to establish an insurance rate structure that takes into account measures to mitigate insured losses; and (iii) ensures, to the extent that reinsurance coverage made available under the eligible State 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. (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 covered under the State program pursuant to paragraph (1); (B) shall be subject to a requirement under State law that for any insurance coverage made available under the State insurance program or for any reinsurance coverage for such insurance coverage made available under the State reinsurance program, the premium rates charged shall cover the expected value of all future costs associated with insurance policies or reinsurance contracts written by such program, in accordance with the principles under section 303(g); (C) shall make available to all qualifying policyholders insurance or reinsurance coverage, as applicable, and mitigation services on a basis that is not unfairly discriminatory; and (D) publishes, and displays in a prominent location on a website for the State insurance program, information for the State insurance program of estimated assessments and surcharges on policyholders, in accordance with State laws, regulations, or other requirements, for a range of natural disaster or catastrophic events having a varying magnitude of losses, including an event projected to result in losses of such magnitude that they have a 1 percent chance of being equaled or exceeded in any single year, based on the current year estimated aggregate funding capacity of the State insurance program and State reinsurance program. (7) Land use and zoning The State program, 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) Risk-based capital requirements The State program— (A) complies with such risk-based capital requirements as applicable State law may impose and shall take into consideration asset risk, credit risk, underwriting risk, and such other relevant risk as determined by the Secretary; and (B) for each calendar year, prepares and submits to the Secretary a report identifying its claim-paying capacity at such time after the conclusion of such year, and containing such information and in such form, as the Secretary shall require. (9) Other requirements The State program complies with such additional organizational, underwriting, and financial requirements as the Secretary shall, by regulation, provide to carry out the purposes of this Act. (b) Certification The Secretary shall establish procedures for initial certification and recertification as an eligible State program. (c) Transitional Mechanisms For the 5-year period beginning on the date of the enactment of this Act, in the case of a State that does not have an eligible State 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 an eligible State 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) Reinsurance To cover exposure This section may not be construed to limit or prevent any eligible State program from obtaining reinsurance coverage for insured losses retained by insurers pursuant to this section.