S 1486 IS
111th CONGRESS
1st Session
S. 1486
To amend the Internal Revenue Code of 1986 to provide for the creation of disaster protection funds by property and casualty insurance companies for the payment of policyholders’ claims arising from future catastrophic events.
IN THE SENATE OF THE UNITED STATES
July 21, 2009
Mr. NELSON of Florida (for himself and Mr. MARTINEZ) introduced the following bill; which was read twice and referred to the Committee on Finance
A BILL
To amend the Internal Revenue Code of 1986 to provide for the creation of disaster protection funds by property and casualty insurance companies for the payment of policyholders’ claims arising from future catastrophic events.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
SEC. 2. FINDINGS.
The Congress makes the following findings:
(1) Rising costs resulting from natural disasters are placing an increasing strain on the ability of property and casualty insurance companies to assure payment of homeowners’ claims and other insurance claims arising from major natural disasters now and in the future.
(2) Present tax laws do not provide adequate incentives to assure that natural disaster insurance is provided or, where such insurance is provided, that funds are available for payment of insurance claims in the event of future catastrophic losses from major natural disasters, as present law requires an insurer wishing to accumulate surplus assets for this purpose to do so entirely from its after-tax retained earnings.
(3) Revising the tax laws applicable to the property and casualty insurance industry to permit carefully controlled accumulation of pretax dollars in separate reserve funds devoted solely to the payment of claims arising from future major natural disasters will provide incentives for property and casualty insurers to make natural disaster insurance available, will give greater protection to the Nation’s homeowners, small businesses, and other insurance consumers, and will help assure the future financial health of the Nation’s insurance system as a whole.
(4) Implementing these changes will reduce the possibility that a significant portion of the private insurance system would fail in the wake of a major natural disaster and that governmental entities would be required to step in to provide relief at taxpayer expense.
SEC. 3. CREATION OF POLICYHOLDER DISASTER PROTECTION FUNDS; CONTRIBUTIONS TO AND DISTRIBUTIONS FROM FUNDS; OTHER RULES.
(a) Contributions to Policyholder Disaster Protection Funds- Subsection (c) of section 832 of the Internal Revenue Code of 1986 (relating to the taxable income of insurance companies other than life insurance companies) is amended by striking ‘and’ at the end of paragraph (12), by striking the period at the end of paragraph (13) and inserting ‘; and’, and by adding at the end the following new paragraph:
‘(14) the qualified contributions to a policyholder disaster protection fund during the taxable year.’.
(b) Distributions From Policyholder Disaster Protection Funds- Paragraph (1) of section 832(b) of the Internal Revenue Code of 1986 is amended by striking ‘and’ at the end of subparagraph (D), by striking the period at the end of subparagraph (E) and inserting ‘, and’, and by adding at the end the following new subparagraph:
‘(F) the amount of any distributions from a policyholder disaster protection fund during the taxable year, except that a distribution made to return to the qualified insurance company any contribution which is not a qualified contribution (as defined in subsection (h)) for a taxable year shall not be included in gross income if such distribution is made prior to the filing of the tax return for such taxable year.’.
(c) Definitions and Other Rules Relating to Policyholder Disaster Protection Funds- Section 832 of the Internal Revenue Code of 1986 (relating to insurance company taxable income) is amended by adding at the end the following new subsection:
‘(h) Definitions and Other Rules Relating to Policyholder Disaster Protection Funds- For purposes of this section--
‘(1) POLICYHOLDER DISASTER PROTECTION FUND- The term ‘policyholder disaster protection fund’ (hereafter in this subsection referred to as the ‘fund’) means any custodial account, trust, or any other arrangement or account--
‘(A) which is established to hold assets that are set aside solely for the payment of qualified losses, and
‘(B) under the terms of which--
‘(i) the assets in the fund are required to be invested in a manner consistent with the investment requirements applicable to the qualified insurance company under the laws of its jurisdiction of domicile,
‘(ii) the net income for the taxable year derived from the assets in the fund is required to be distributed no less frequently than annually,
‘(iii) an excess balance drawdown amount is required to be distributed to the qualified insurance company no later than the close of the taxable year following the taxable year for which such amount is determined,
‘(iv) a catastrophe drawdown amount may be distributed to the qualified insurance company if distributed prior to the close of the taxable year following the year for which such amount is determined,
‘(v) a State required drawdown amount may be distributed, and
‘(vi) no distributions from the fund are required or permitted other than the distributions described in clauses (ii) through (v) and the return to the qualified insurance company of contributions that are not qualified contributions.
‘(2) QUALIFIED INSURANCE COMPANY- The term ‘qualified insurance company’ means any insurance company subject to tax under section 831(a).
‘(3) QUALIFIED CONTRIBUTION- The term ‘qualified contribution’ means a contribution to a fund for a taxable year to the extent that the amount of such contribution, when added to the previous contributions to the fund for such taxable year, does not exceed the excess of--
‘(A) the fund cap for the taxable year, over
‘(B) the fund balance determined as of the close of the preceding taxable year.
‘(4) EXCESS BALANCE DRAWDOWN AMOUNTS- The term ‘excess balance drawdown amount’ means the excess (if any) of--
‘(A) the fund balance as of the close of the taxable year, over
‘(B) the fund cap for the following taxable year.
‘(5) CATASTROPHE DRAWDOWN AMOUNT-
‘(A) IN GENERAL- The term ‘catastrophe drawdown amount’ means an amount that does not exceed the lesser of the amount determined under subparagraph (B) or (C).
‘(B) NET LOSSES FROM QUALIFYING EVENTS- The amount determined under this subparagraph shall be equal to the qualified losses for the taxable year determined without regard to clause (ii) of paragraph (8)(A).
‘(C) GROSS LOSSES IN EXCESS OF THRESHOLD- The amount determined under this subparagraph shall be equal to the excess (if any) of--
‘(i) the qualified losses for the taxable year, over
‘(ii) the lesser of--
‘(I) the fund cap for the taxable year (determined without regard to paragraph (9)(E)), or
‘(II) 30 percent of the qualified insurance company’s surplus as regards policyholders as shown on the company’s annual statement for the calendar year preceding the taxable year.
‘(D) SPECIAL DRAWDOWN AMOUNT FOLLOWING A RECENT CATASTROPHE LOSS YEAR- If for any taxable year included in the reference period the qualified losses exceed the amount determined under subparagraph (C)(ii), the ‘catastrophe drawdown amount’ shall be an amount that does not exceed the lesser of the amount determined under subparagraph (B) or the amount determined under this subparagraph. The amount determined under this subparagraph shall be an amount equal to the excess (if any) of--
‘(i) the qualified losses for the taxable year, over
‘(ii) the lesser of--
‘(I) 1/3 of the fund cap for the taxable year (determined without regard to paragraph (9)(E)), or
‘(II) 10 percent of the qualified insurance company’s surplus as regards policyholders as shown on the company’s annual statement for the calendar year preceding the taxable year.
‘(E) REFERENCE PERIOD- For purposes of subparagraph (D), the reference period shall be determined under the following table:
‘For a taxable year
Full Text of Legislation