guaranteed in accordance with this Act by reason of insolvency arising while the insurer was a federally guaranteed insurer;

(7) the term "insolvent insurer" means an insurer which has been adjudicated insolvent by a court of competent jurisdiction;

(8) the term "insurer" means any person which is engaged in transacting insurance or suretyship as a principal in interstate commerce or which is reinsured in interstate commerce;

(9) the term "insurance" means a contract whereby one undertakes to indemnify another or pay a specified amount or provide a designated benefit upon a determinable contingency;

(10) the term "interstate commerce" means trade in or affecting commerce between or among the several States;

(11) the term "net direct premiums written" means direct gross premiums written on policies guaranteed in accordance with this Act less return premiums thereon and dividends paid or credited to policyholders on such direct business;

(12) the term "operating expenses" means all administrative expenses of the Commission, including but not limited to salaries, office supplies, and other business expenses, but does not include (A) allocated and unallocated claim and loss expenses arising from payment of guaranteed claims; or (B) interest on any Treasury loans (but does include payment of interest on capital stock advanced);

(13) the term "person" means an individual, corporation, partnership, association, joint stock company, business trust, unincorporated organization, or any other similar entity;

(14) the term "policy" means any contract of direct insurance or surety, including any endorsement, binder, (written or oral), cover note, certificate, or other instrument of insurance attached or relating thereto, without regard to the nature or form of the same;

(15) the term "State supervisory authority" means the agency or official of a State having responsibility for regulating the business of insurance within that State;

(16) the term "transacting" with respect to insurance means any of the following:

(A) solicitation and inducement;

(B) preliminary negotiations;

(C) effectuation of a policy; or

(D) transaction of matters subsequent to effectuation of a policy and arising out of it; and

(17) the term "insurance obligation" means any unsatisfied obligation, excluding amounts due any reinsurer, insurer, insurance pool, or underwriting association, as subrogation recoveries or otherwise

(A) which exists under and within the coverage and limits of insurance policies issued by any insurer adjudged to be impaired or insolvent; and

(B) which has been finally determined administratively or judicially under applicable State law to be valid and certain as to its terms.

TITLE I-FEDERAL INSURANCE GUARANTY PROGRAM

FEDERAL INSURANCE COMMISSION

SEC. 101. (a) There is hereby established a Federal Insurance Commission, which shall be an independent agency in the executive branch and shall have the powers hereinafter granted.

(b) Upon the date of enactment of the Federal Insurance Act of 1977, the Commission shall have power:

(1) To adopt and use a seal.

(2) To have succession until dissolved by an Act of Congress.

(3) To make contracts..

(4) To sue and be sued, complain and defend, in any court of law or equity, local, State, or Federal. All suits of a civil nature at common law or in equity to which the Commission shall be a party shall be deemed to arise under the laws of the United States, and the United States district courts shall have original jurisdiction thereof, without regard to the amount

in controversy; and the Commission may, without bond or security, remove any such action, suit, or proceeding from a State court to the United States district court for the district or division embracing the place where the same is pending by following any procedure for removal now or hereafter in effect. No attachment or execution shall be issued against the Commission or its property before final judgment in any suit, action, or proceeding in any local, State, or Federal court. The Commission shall designate an agent upon whom service of process may be made in any State to which any federally guaranteed insurer is transacting insurance or has its principal place of business.

(5) To appoint and fix the compensation of such officers and employees as it deems appropriate.

(6) To exercise all powers specifically granted by the provisions of this Act, and such incidental powers as shall be necessary to carry out the powers so granted.

(7) To make examinations of and to require information and reports from all federally guaranteed insurers or applicants for a guaranty or charter, their managers and agents, as required in this title.

(8) To cooperate and coordinate with State supervisory authorities and associations thereof on matters affecting the solvency of federally chartered insurers.

(9) To act as receiver, trustee, rehabilitator, or liquidator.

(10) To prescribe such rules and regulations as it may deem necessary to carry out the provisions of this Act.

(c) (1) The Commission shall consist of three members, who shall be appointed by the President, by and with the advice and consent of the Senate. One of the members shall be designated by the President to be the Chairman of the Commission. Not more than two of the members of the Commission shall be members of the same political party.

(2) Each member of the Commission shall hold office for a term of six years. In the event of a vacancy in the office of the Chairman of the Commission, and pending the appointment of a successor, the more senior of the remaining members shall act as Chairman.

(3) The Chairman of the Commission shall have executive authority within the Commission, including the authority to employ and direct the personnel of the Commission.

(4) The members of the Commission shall be ineligible during the time they are in office and for two years thereafter to hold any office, position, or employment in any federally chartered insurer, except that this restriction shall not apply to any member who has served the full term for which he was appointed. No member of the Commission shall be an officer or director of any insurer or hold stock in any federally chartered or guaranteed insurer; and before entering upon his duties as a member of the Commission he shall certify under oath that he has complied with this requirement and such certification shall be filed with the Secretary of the Commission.

(d) (1) There is hereby established an Advisory Committee consisitng of the Special Assistant to the President on Consumer Affairs, ex officio, a representative of the Secretary of the Treasury, ex officio, a representative of the Secretary of Housing and Urban Development, ex officio, and ten members appointed by the Chairman of the Commission of whom four shall be selected from among persons actively employed in the private insurance industry (including one representative of the reinsurance industry), three shall be selected from among persons actively engaged in State supervisory or legislative activities, and three shall be selected as consumer representatives of the general public.

(2) The Chairman of the Commission shall designate a Chairman and a Vice Chairman of the Advisory Committee.

(3) Each member shall serve for a term of two years or until his successor has been appointed and shall have qualified. Members may be reappointed, except that no person who is appointed from among persons actively employed in the private insurance industry or from among persons actively engaged in State supervisory or legislative activities shall serve in such position after he ceases to be so employed, unless reappointed in another capacity.

(4) Any member appointed to fill a vacancy occurring prior to the expiration of the term for which his predecessor was appointed shall be appointed for the remainder of that term.

(5) The Vice Chairman of the Advisory Committee shall preside in the absence or disability of the Chairman. In the absence of both the Chairman and Vice Chairman, the Chairman of the Commission may appoint any member to act as Chairman pro tempore. The Committee shall meet at such times and places as it or the Chairman of the Commission may fix and determine, but shall hold at least four regularly scheduled meetings a year. Special meetings may be held at the call of the Chairman of the Advisory Committee, or any three members of the Committee, or at the call of the Chairman of the Commission. A majority of the members shall constitute a quorum for the transaction of business.

(6) The Committee shall review the procedures, practices, and policies of the Commission and advise the Commission with respect thereto, assist in obtaining the cooperation of insurers, industry groups, and Federal and State agencies, consult with and make recommendations to the Commission with respect to carrying out the purposes of this Act, and render such advice as the Commission may, from time to time, seek. The written reports and recommendations of the Committee shall be made available by the Commission to the public. (7) The members of the Committee shall not, by reason of such membership, be deemed to be employees of the United States, and such members, except the Special Assistant to the President on Consumer Affairs and the representatives of the Secretary of the Treasury and of the Secretary of Housing and Urban Development, shall receive for their services as members the per diem equivalent to the rate for grade GS-18 of the General Schedule under section 5332 of title 5, United States Code, when engaged in the performance of their duties, and each member of the Committee shall be allowed travel expenses, including per diem in lieu of subsistence, as authorized by section 5703 of such title for persons in the Government service employed intermittently.

(8) The Committee shall be subject to the Federal Advisory Committee Act. (e) The Commission shall administer its affairs fairly and impartially and without discrimination. The Commission shall determine and prescribe the manner in which its obligations shall be incurred and its expenses allowed and paid. The Commission, with the consent of any Federal executive department, commission, independent establishment, corporation owned or controlled by the United States, board, bureau, division, service office, authority or administration in the executive branch of Government, including any field service thereof, may avail itself of the use of information, services, and facilities thereof in carrying out the provisions of this Act.

(f) (1) There are transferred to the Commission all functions, powers, and duties conferred upon the Secretary of Housing and Urban Development pursuant to title XI of the National Housing Act, title XIII of the Housing and Urban Development Act of 1968, the Flood Disaster Protection Act of 1973 and the Federal Flood Insurance Act of 1956, except that the National Insurance Development Fund shall be kept separate from the fund established under section 4. Any reference to the Secretary of Housing and Urban Development contained in any such statute shall be deemed to be a reference to the Commission. (2) Section 5315 (91) of title 5, United States Code, is repealed.

(3) The personnel employed in connection with, and the assets, liabilities, contracts, property, records, and unexpended balances of appropriations, authorizations, allocations, or other funds held, used, arising from, or available or to be made available in connection with, the functions, powers, and duties transferred by this subsection are hereby transferred with such functions, powers, and duties, respectively.

(4) No cause of action by or against any agency whose functions are transferred by this title, or by or against an officer of any agency in his official capacity, shall abate by reason of this transfer. Such causes of action may be asserted by or against the United States, the Commission, or such officer or employee of the Corporation as may be appropriate.

(5) No suit, action, or other proceeding commenced by or against any agency whose functions are transferred by this subsection, or by or against any officer of any such agency in his official capacity, shall abate by reason of the enactment of this subsection. A court may at any time during the pendency of the litigation, on its own motion or that of any party, order that the same may be maintained by or against the United States, the Commission, or such officer or employee of the Corporation as may be appropriate.

(6) Except as may be otherwise expressly provided in this Act, all powers and authorities conferred by this Act shall be cumulative and additional to and not in derogation of any powers and authorities otherwise existing. All rules, regulations, orders, authorizations, delegations, or other actions duly issued, made, or taken by or pursuant to applicable law, prior to the effective date of this Act, by any agency, officer, or office pertaining to any functions, powers, and duties transferred by this Act shall continue in full force and effect after the effective date of this Act unless and until modified or rescinded by the Commission.

(g) The Commission shall annually make a report of its operations to the Congress as soon as practicable after the 1st day of June in each year. Such report shall include a statement with respect to the status and scope of the Federal Insurance Guaranty Fund, together with such recommendations concerning its adequacy or inadequacy as the Commission deems necessary or desirable.

FEDERAL INSURANCE GUARANTY FUND

SEC. 102. (a) The Congress finds and declares that, in order to assure policyholders the protection of insurance policies they have purchased, notwithstanding the insolvency of the issuing insurance company, the United States national policy shall be to facilitate early detection of the financial condition of insurers which, if not corrected, render reasonably probable the insolvency, impairment, or inability of such insurers to fulfill their contractual obligations to policyholders or claimants when due, and to provide for the orderly winding down and liquidation of insolvent insurers by establishing a Federal insurance guaranty program which shall establish uniform standards for guaranty status and shall maximize the efficient utilization of the capabilities and facilities of private insurers in the discharge of policy obligations of private insurers which become insolvent.

(D) There is established in the Treasury of the United States a fund to be known as the Federal Insurance Guaranty Fund (hereinafter referred to as the "fund"). The fund shall contain fees paid by companies whose insurance obligations are guaranteed by the Commission, the proceeds of obligations issued under subsection (d), and receipts from any other source.

(c) Moneys in the fund shall be available to the Commission, without fiscal year limitation, to the extent provided in appropriations Acts, for the purpose of carrying out its obligations under guaranties under this Act and to cover the expenses of carrying out its functions under this Act.

(d) To the extent necessary to cover losses, the Commission is authorized to issue to the Secretary of the Treasury notes or other obligations in an aggregate amount of not to exceed such amounts as may be approved in appropriations Acts, in such forms and denominations, bearing such maturities, and subject to such terms and conditions, as may be prescribed by the Secretary of the Treasury. Such notes or other obligations shall bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the current average market yield on outstanding marketable obligations of the United States of comparable maturities during the month preceding the issuance of the notes or other obligations. The Secretary of the Treasury is authorized to purchase any notes and other obligations issued hereunder and for that purpose he is authorized to use as a public debt transaction the proceeds from the sale of any securities issued under the Second Liberty Bond Act, and the purposes for which securities may be issued under that Act are extended to include any purchase of such notes and obligations. The Secretary of the Treasury may at any time sell any of the notes or other obligations acquired by him under this subsection. All redemptions, purchases, and sales by the Secretary of the Treasury of such notes or other obligations shall be treated as public debt transactions of the United States.

(e) Any insurance obligation incurred or maintained, exclusive of the reinsured obligations of a ceding insurer by a federally guaranteed insurer during a period when such insurer is authorized to do buisness under this Act is guaranteed and, upon the default of such insurer, such obligation shall be met by the Commission utilizing proceeds contained in the Federal Insurance Guaranty Fund. Any guaranty hereunder is a full faith and credit obligation of the United States. The Commission shall establish and collect from each insurer guaranteed under this Act an annual fee calculated as a percentage of its net direct premiums, and such fee may not exceed one-fourth of 1 per centum per year. The Commission may establish different levels of fees for different types of insurers:

Provided, That all insurers of the same type shall pay comparable fees and the fees charged each type of company shall be reasonably related to expected losses. In establishing the guaranty fees to be collected pursuant to this Act, the Commission shall attempt to develop and maintain a balance in the Guarantee Fund sufficient to render unlikely any need to borrow from the Secretary of the Treasury. When the balance in the fund reaches such a sufficient level, the fee established and collected under this section may be reduced or suspended.

(f) The Commission shall, to the maximum extent practicable, pay any amount owing under any such guaranty through other insurers to which the policy giving rise to the obligation has been assigned.

FEDERAL GUARANTY CERTIFICATE

SEC. 103. (a) The Commission is authorized to issue a Federal guaranty certificate to any insurer which meets such financial and other requirements as the Commission may reasonably prescribe pursuant to this section.

(b) Any insurer may make application to the Commission for a certificate under this section, which certificate is in force in any line of insurance insuring persons or risks situated in any State, except that no insurer chartered under the provisions of this Act may make, issue, renew, or continue in effect any insurance policy or otherwise transact insurance unless and until it has received a certificate hereunder.

(c) Such application shall be in such form and shall contain such information as the Commission shall, by regulation prescribe, including, but not limiting to— (1) a designation of each State in which the insurer will transact insurance and the lines of insurance to be offered;

(2) a statement of the insurer's capital and surplus, in the case of a stock insurer, or guaranty fund, in the case of an insurer other than a stock in

surer.

(d) The Commission shall make such examination of an applicant for a certificate hereunder as it deems necessary to ascertain the financial condition and fitness of the applicant. For this purpose, the Corporation may utilize employees of the Commission, independent contractors, and other agencies of the Federal Government. It may take into consideration reports of independent auditors and reports and certifications by State supervisory authorities.

(e) Any person exercising or possessing effective control of a federally guaranteed insurer shall be subject to the regulatory authority of the Commission. (f) No insurer whose policyholders are liable to assessment under any policy issued by it shall be granted a guaranty certificate under the provisions of this Act.

(g) Nothing in this Act shall be deemed to prohibit any insurer from engaging in both a life and property and liability insurance buisness in any State if otherwise authorized to do so.

(h) (1) (A) Unless the application or any part thereof is earlier returned to the applicant by the Commission because of legal insufficiency, the nature of such insufficiency having been stated in writing by the Commission, the Commission shall, not later than ninety days following the filing of the application for a Federal certificate, issue or refuse to issue such certificate: Provided, That if a financial examination or audit of the applicant or any affiliated or related person subject to this Act has been commenced by the Commission but has not been completed, the Commission may extend the period for one additional period of ninety days.

(B) The Commission may refuse to issue a certificate hereunder upon its determination that the insurer is not financially safe and sound for any, or any combination, of the following reasons:

(i) assets supportive of the insurer's policyholder obligations fail to provide sufficient integrity and stability for that purpose;

(ii) the insurer's underwriting commitments have consistently been in excess of its capacity;

(iii) in applying for the certificate, the insurer has failed to disclose material facts or circumstances bearing upon its worthiness for receiving a certificate;

(iv) the insurer's reserves for liabilities are materially deficient or its liabilities are materially understated; or

(v) the insurer is effectively controlled by officers, directors, stockholders, or other persons whose conduct has demonstrated such persons to be unworthy of trust or confidence.