House Panel Approves Measure to Allow Sale of Cat Bonds by States
A bill approved by the Financial Services Committee would allow states to get federal assistance selling catastrophe bonds to fund earthquake or hurricane recovery.
A national program to help issue the bonds, the Homeowners’ Defense Act, would spread the potential expense of disasters among investors who face losing their entire investment in a natural catastrophe in exchange for yields above benchmark rates. The Committee voted 36 to 27 today to approve the measure.
Private carriers scaled back in high-risk areas after Hurricane Katrina struck the Gulf Coast in 2005, prompting coastal states to expand programs that promise to reimburse homeowners or insurers. States are already permitted to issue so-called `cat' bonds, though none have.
“This bill recognizes that we need to bring normalcy back into the market,'' said Representative Tim Mahoney, a Florida Democrat who is a co-sponsor, during debate on the legislation yesterday. “The cost of covering the potential liability of a major event makes homeowners insurance unaffordable or in some cases creates a risk that is so great for the insurance company that they are better off dropping the insured.''
The proposed federal program would issue the bonds in its own name. States would make the interest payments to investors.
Published on September 26, 2007
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