The Homeownersâ Defense Act: An Overview (CRS Report for Congress)
| Release Date |
Revised Jan. 30, 2008 |
| Report Number |
RS22756 |
| Report Type |
Report |
| Authors |
Rawle O. King, Government and Finance Division |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
In the aftermath of Hurricane Katrina in 2005, the demand for homeowners' insurance in East and Gulf Coast states has outpaced supply, leaving policymakers and insurance regulators struggling to find ways to assure the continued availability of affordable property insurance. While a consensus has yet to emerge, many insurance analysts would maintain that probable maximum losses (PML) associated with megacatastrophes, above a 250-year expected return frequency, are beyond the global insurance and reinsurance industry's capital asset capacity. Insurers and policymakers are now pursuing alternative forms of risk transfer, such as securitization. While the securitized insurance risk market remains modest compared to traditional reinsurance, the number and value of catastrophe bond transactions increased dramatically after the 2005 hurricane season. As one would expect with a relatively new market, insurer and investor preferences as to form and structure of insurance-linked securities (ILS) continue to evolve. Investors tend to want to fully understand the nature of risk they assume while insurers tend to want to transfer at least some risks that are not easily quantified. [â¦] The objective of the long-term loan program is to ensure that qualifying reinsurance programs can find a buyer of long-term debt to finance large loss events. Both the Consortium and loan programs seek to promote a stable catastrophe insurance market and avoid widespread insurer insolvencies after a natural catastrophe. The Consortium would operate as a congressionally chartered not-for-profit corporation. H.R. 3355 also clarifies that the federal government will bear no liabilities from the actions of the Consortium. This report will be updated as events warrant.
